All Forum Posts by: Michael Kinsella

Hi Tanu,

You'll likely just need to speak with more lenders, and be sure to inform them up front of your renovation plans.

The two issues you're likely to encounter with lenders are,

1) Your lack of experience. This becomes particularly relevant when you aim to tackle larger rehab projects.

2) The size/scope of the rehab. Some, but not all lenders will take issue of this, particularly if the rehab budget is quite large compared to the as-is value or purchase price of the property.

Below are some ideas for finding more lenders to speak with;

1) Start to develop some local bank relationships. They may not be able to help in this instance due to the nature of the project, but it doesn't hurt to begin to cultivate those relationships early on.

2) Google "Multifamily value-add lenders Detroit", or something similar to pull search results.

3) Use BiggerPockets. Click on the Network tab on the top navigation menu, then Hard Money Lenders --> Filter by state (MI).

4) Attend local real estate investor meet-ups/REIA events. You can network with other real estate investors who may have referrals, and also lender reps.

Best of luck,

Michael

Congrats on a successful flip! I'm glad you had a positive lending experience as well.

1. Are most HMLs comfortable having their funds be used as gap funds during a resale period?

The best route is probably either an individual private money lender, or a HML that provides transactional funding. I would think either of those are more likely to be in line with what you're seeking.

There are a few wrinkles in your scenario that are likely to create pause in typical HML underwriting;

1) The 2nd lien that stays with you: Many HMLs want to be the "1st and only" lien on the property. 

2) The $ amount of the loan: Many HMLs won't lend less than 50k, and even that floor is relatively rare. Many have 75k or 100k minimums.

2. If the rehab responsibility will fall on the end buyer will HMLs accept this and not require rehab funds (from me) be escrowed and drawn against?

Essentially, it sounds like you're seeking acquisition bridge financing, which will then be paid off from the proceeds of the end buyer. 

It sounds like you're intent on holding a 2nd lien, effectively providing seller financing to the end buyer of the property. 

It sounds like no renovation work will be completed during the initial loan you're seeking, in which case a lender is unlikely to provide any renovation funds (or holdback).

 A few good starting points...

1. BiggerPockets --> Network tab (top nav bar) --> Hard Money Lenders --> Filter by State

2. Google search, "Hard money lenders (insert city name)"

3. Local REIA/real estate investor meetups, where you can network with other investors and potentially some HML reps.

Regarding 85-90% LTV, you may consider reducing your expectations.

Many HMLs max out LTV (more precisely LTARV, or loan-to-after-repair value) at 65-75% LTV.

LTC (loan-to-cost) can often approach 85-90%, but that is a function of your purchase price + renovation cost, not the after-repair value of the property.

@Faith Importico Awesome.

Hi @Faith Importico,

What was/is the renovation cost? Has this already sold?

@Will Ervin Try local real estate investor meetups.

Key data points that any lender (HML, private individual lender, or other) will want to understand about the project are:

- Property type (e.g. SFR, 2-4 unit multifamily, etc.)

- As-is value

- Purchase price

- Renovation scope and cost (what are you doing to the property and how much will it cost?)

- After-repair value

The above list is by no means exhaustive, but those are definitely some key points that lenders will want to understand.

@Derrick Reyes

Is it possible for a new investor to get a hard money loan that doesn't require an appraisal?

In short, yes. The highest likelihood HMLs are local HMLs, as they'll have the market familiarity to be able to just obtain a BPO or even perform a desktop underwrite.

HMLs with national coverage are very likely to require full appraisals for two reasons;

1) It may be a formal stipulation in their underwriting guidelines.

2) They don't have the specific local market confidence that a lender based in that city would have.

You may want to try local REIA meetups. In addition to some HML reps, you may find a private individual lender or two, who will likely have less stringent requirements than a HML.

Interesting as that loan amount is likely on the lower end of what HMLs offer.

Which HML did you work with if you don't mind me asking?

Generally, as @Jack Tulloch said, the exits are either...

a) Sell the property and use a portion of the proceeds to pay back the loan.

or

b) Refinance the hard money loan with a permanent, lower-cost loan. This often is in the form of traditional (bank) financing, or a DSCR loan.