All Forum Posts by: Daniel Elijah Richardson

OK Sure, for this example lets just use 12 months, 3 points @12%.  The lender says they will cover 100% of the construction costs and the rest will be towards the purchase price.  

So first we want to find 65% of the LTV and 80% of the LTC

- LTV (Loan to Value). ARV x .65

- LTC (Loan to Cost).  (Purchase Price + Rehab Costs) x .80 

LTV Loan = (200,000 x .65) = 130,000

LTC Loan = (75,000 + 55,000) x .80 = 104,000

So our loan amount in this case would be 104k because it is the lower of the two.  The safest for the lender.

Using the terms above, 49,000 will be released at closing and go towards the purchase price.  The remaining 55,000 will be held for the construction costs.  49,000 + 55,000 = Total loan of 104,000.

Next is what charged by the lender.

Points = Loan amount 104,000 x .03 = 3,120

Monthly Interest payments would be = Loan amount x 12% divided by 12 months

Monthly payments would = 1,040  (104,000 x .12) / 12

Next is what the borrower must bring

Down payment = 26,000 (the remaining amount for the purchase price.  49,000 from the lender + 26,000 from the borrower = 75,000 the entire purchase price.)

The points mentioned above - 3,120

Closing costs (lets estimate 3%) - 2,250

Insurance - 900

Lawyer fee's - 1000

So in this scenario the buyer would bring about 33,270 to the table.  

Remember to factor in carrying costs such as utilities, taxes, agent fees, etc.  Based on the numbers I would say this deal is OK as long as the rehab is finished within a reasonable amount of time.  There is money to be made here.  Overall you are putting up 33-40k and making roughly 25-35k.  

Does this make sense?

Of course these rates and terms are different on a per deal basis but this gives you an idea of how to breakdown the loan.

Is this a HML or a Private Lender? Close, but not the same. Have they seen the deal? I have people who lend 100/100, but it's not normal criteria. If I get these terms I'm certainly cutting off a big chunk of the profits. Could be advantageous, but only if you know what you're doing. Never ideal to be that leveraged, but if the deal makes sense could be a good scenario. Best of luck!

it could in that scenario with that big of spread.. play it out.. see if it works.. just don't give them any money up front.. if they fund then you found a good one...

I have spent 30 years loaning HM as a company with 20 employees and a 35 million dollar book.. and as stated .. that's not how HM lenders operate GENERALLY.. but then again your in MI and things are different in that neck of the world.. pretty tough to find that big of spread in most markets between what your buying it for and FMV... but its still a risk to the lender

because usually rehab is a much smaller % of the overall loan.. so to take your equity in the rehab is not the proper way to do it as a lender. you want your equity in the purchase price of the home.. so that when and if you fail.. and you were getting draws.. the lender is protected...

if the asset is only worth 30k wholesale then that's all its worth if you can't pull it off and the lender in this scenario would undoubtedly  take a loss.

but again your lender just may not really know what they are doing.. plenty of those out there.. we see them post on BP all the time.. HEY I made this loan and now I am not getting paid and there is not enough money to finish and my borrower wont' talk to me... LOL... been there done that a few hundred times.... good luck with it.

it could in that scenario with that big of spread.. play it out.. see if it works.. just don't give them any money up front.. if they fund then you found a good one...

I have spent 30 years loaning HM as a company with 20 employees and a 35 million dollar book.. and as stated .. that's not how HM lenders operate GENERALLY.. but then again your in MI and things are different in that neck of the world.. pretty tough to find that big of spread in most markets between what your buying it for and FMV... but its still a risk to the lender

because usually rehab is a much smaller % of the overall loan.. so to take your equity in the rehab is not the proper way to do it as a lender. you want your equity in the purchase price of the home.. so that when and if you fail.. and you were getting draws.. the lender is protected...

if the asset is only worth 30k wholesale then that's all its worth if you can't pull it off and the lender in this scenario would undoubtedly  take a loss.

but again your lender just may not really know what they are doing.. plenty of those out there.. we see them post on BP all the time.. HEY I made this loan and now I am not getting paid and there is not enough money to finish and my borrower wont' talk to me... LOL... been there done that a few hundred times.... good luck with it.

Well then your not conveying your questions correctly.. you SAID 100% LTV or loan to Cost and 75% of rehab funds.. in the industry that is *** backwards.. it does not work that way.

so you either have a nincompoop lender or a scammer .. one or the other.

@Daniel Elijah Richardson   so the 64,000 dollar question is.. ONE do you have experience ?  is this your first flip?

TWO  is the lender local can you eye ball them and do they have a brick and motor office.

THREE did they approve you over the phone or internet and just need you to send in 200 to 500 dollars for due diligence fee.. and once they have that they will move to closing.

If the answer is its your first flip,,,,, and lender is not local just hit you on the internet or on BP somewhere,

And they want ANY kind of up front fee... other than paying for a third party appraisal and a modest credit check fee.. ( just like qualifiy for a rental)..

then chances are they are not going to close and you will lose whatever money you give them.