All Forum Posts by: Eric Loya

@Dante Foreman Sounds like an opportunity in the making. Being a direct hard money lender, you should be able to find programs as long as you have a credit score above 500 with no recent bankruptcies or foreclosures. Expect a higher rate though in exchange (i.e. 10-12%) as lenders consider credit, cash available for the project, and experience. Bringing a credit or experienced flipping partner into the mix would help you secure better terms.

Most hard money lenders don't require income verification, but we will want to verify that you have enough to contribute to the project (10-20%) and a few months of interest reserves + closing costs. Expect programs to offer 80-90% of purchase price and up to 100% of rehab costs. Hope this gives you some insight when you're ready to make some moves!

@Brandon Mix Hey Brandon, great to hear you're back in the game of investing! As a local lender in Southern California, you'll be fine securing capital whether or not you have ownership in the business entity you are creating. It will make funding easier to stay off documentation though if you've recently gone through a foreclosure or bankruptcy.

Yes, hard money lenders will check credit, but if you have a co-signor with superior credit that will help sway underwriters in favor of lending. Hard money loans are primarily asset based, but each lender will put weight on different factors. We'll also consider investment experience and cash contribution to a deal when determining the rate and risk of each loan provided. 

As long as you have decent cash to bring to the deal and/or experience flipping this shouldn't be an issue.

Hey Dorian, I think your best bet is to use these funds for a flip first, build equity and pay off the loan so you can acquire rentals for the long run as you go. Most hard money lenders will consider financing 80-90% of purchase and the majority, if not all of repair costs up to about 70% of resale value. Keep this, and holding costs, in mind when you source projects to ensure the personal loan will be enough to take on a flip of your own.

@Dave Zarcone Hey Dave, pleasure to see a post from a local 909-er ;) I grew up in Rancho Cucamonga and started investing in San Bernardino.

I agree with Andrew on this. 

The market has gotten very tight over the years as most investors are seeing 6-10% cash on cash returns per project in our area - sometimes even lower. 

In regards to construction costs in the area, my partner and I take on deals expecting around $30/sf for simple cosmetic rehab on middle tier homes (does not include ac,roof work, electrical, plumbing, or foundation work). 

If it's a simple rehab, start forming relationships with sub contractors (paint, flooring, kitchen/bath, etc). You could easily cut down the costs by managing these guys yourself rather than pay more for a GC to manage it.

In all, expect to shell out offers like it's nobody's business, especially in a market like ours. As the saying goes, it's all a numbers game.

@Arturo Borges Hey Arturo, I like your thinking of leveraging your time and capital to bring in other partners. That's exactly how I got started investing.

My biggest piece of advice is get your process/presentation dialed in to private partners. 

Hard Money is easy to find, private lenders are a bit tougher. 

The biggest thing to discuss with lenders is profitability of the deal and safety of their funds. These are 4 items to address with a private lender (hard money lenders already know this or will ask this before issuing funds).

1) Financial Security Through Lien/Deed of Trust - 1st position if lending all the funds for the project, 2nd position if you'll be gap funding (providing the difference from what a hard money lender will provide).

2) Named Loss Payee on Insurance Policy - this insures your money in the case of a filed claim (i.e. fire, storm, vandalism, etc)

4) Financials on Deal – The deal needs to make financial sense to the lender. How much will it sell for? Prove it with comparable sales in the past 3-6 months. How much renovation is needed? Prove it with a scope of work from your general contractor doing the job. At what price are you securing the deal? After net profit, what are you expecting to make? This “cushion” provides security for your investors return as you will take the financial hit should a deal go over budget or take longer to sell.

This should get your wheels turning when it comes to securing a partner for your next deal.

@Minh Nguyen Hey Minh, I agree with Andrew. 

Each lender you speak with has different requirements and allowances, so if you spend some time searching around you may find the ideal partner that suits your biggest concerns. If you're looking for a non-guarantee loan, keep in mind you may have to pay a bit of a higher rate due to the increased risk to the lender. 

@Lelith Walker This private lender sounds fishy. First of all, any type of fee the lender is charging up front should be paid through 3rd party escrow/attorney and will get paid to him upon closing (after he has fronted the capital he says he's willing to lend you). The fact that he is requesting this "fee" before being funded is an immediate RED FLAG.

Pay him up front and you can kiss your money goodbye.

Private lenders should understand your intention when taking on a project, and their role supplying the funds as well as receiving their interest payments. If he's a private lender, he should have:

• 1st or 2nd position lien properly recorded on the property to secure his financial interest
• Named loss payee on the insurance policy for the property. 

If he's a partner, you could both go on title and have it arranged to have a certain % of equitable ownership in the project. Most lenders will take monthly interest payments, or arrange to simply pay the interest due upon closing the deal at the end of the project.

@Danny Cerecedes This is where a partnership with a private money source would come in. In a sense, the private money source would act as your partner or take the 2nd lien position on the deal, funding the difference required by a HML. You can meet these people at real estate investor meetings, or real estate education seminars.

When I started flipping, I actually partnered with my private lenders and offered a % split on profits upon sale. There's other ways to structure the deal, but hopefully it gives you an idea of how it can be done.

@Danny Cerecedes I like you're thinking, and as an investor/lender myself, I would pursue a similar idea. There are a few items you'll need to button up to ensure this plan works according to what you've discussed. Here's my take on what's left to accomplish:

1) A HML will take into consideration experience, credit, and cash to the deal. Although you have limited experience, there are lenders that will consider this opportunity - just expect to pay a bit higher interest rate (i.e. 8-12% interest only payments). This is your best bet to land the deal at the sellers urgent request.

2) You'll want to ensure you can get qualified on the back end from a traditional source of funding to pay off the HML. Because of the price after repairs, you'll be past FHA lending limits in LA, and flirting in Jumbo Loan territory. Usually you can refinance up to 80% but since it's a larger loan, the underwriting process is a bit more stringent.

All in all, it's possible to make this happen, just consider the 2 items of importance before you move forward.

@Jessica White Hard money lenders are easy to find, and are willing to finance the majority of a deal you bring to them. Private Lenders are more like the "rich generous uncle." These are private individuals you may meet at real estate investor meetings. 

The goal with both is to prove to them that they can earn a good return on investment and (more importantly) that their money is safe (i.e. prove to them you're not going to steal their money and run off to Mexico). 

There's a lot of ways to skin the cat, but here are the important items they need to know:

1) How is their money secured when lending on your real estate project?

- deed of trust

- private note 

- named loss payee on insurance policy

- title insurance

2) How do they know the project is a good investment?

- show them estimated resale value of property by providing comparable sales and average days on market to sell

- confirm estimated repairs with licensed contractor, and estimated time to complete repairs

- show estimated net profit once deal is complete

This should give you a good map to run off, and plenty more to research as you plan your next investment strategy! Best of luck in 2018!