All Forum Posts by: Michael Kinsella

Congrats on a successful fix and flip!

Plans for another soon?

 Broadly speaking, you can apply the below framework.

1. Property

HMLs are looking at the subject property (the one you're looking to purchase + renovate). On a renovation project, some of the most important data points are;

- Property type (e.g. SFR, 2-4 unit multifamily, 5+ unit multifamily...)

- Purchase price

- As-is value (this can often be greater than the purchase price if you're getting a good deal on the property)

- Rehab/renovation budget along with the line-item scope of work

- After-repair value

2. Borrower

HMLs are looking at your financial condition, along with your relevant experience. A non-exhaustive list of these types of data points are;

- Liquidity

- Credit score

- Comparable projects completed/sold within the last x years

3. Financing request

HMLs want to understand your financing request. Below are some relevant data points for the financing request;

- Total loan amount requested: remember that HMLs typically fund the renovation portion of a loan on a reimbursement/draw basis, in which case you will need to float the first draw.

- Term length requested

- Exit strategy from the loan: generally a sale of the subject property or refinancing of the debt

Looks like it was likely a profitable deal + some quality lessons learned.

What did you end up spending for the renovation + the financing?

Nice - best of luck on finishing the renovation + selling the property, and let us know how it ends up!

 Three starting points;

1. BiggerPockets --> Network --> Hard Money Lenders --> Filter by state (FL)

2. Google "Florida hard money lenders"

3. Local meetups/REIA events where you can get investor referrals, meet with local HML reps, or individual private lenders

To address the second part of your question...

Essentially all short-term "bridge" loans are structured as I/O or 'interest-only' and require a balloon payment at the end of the term, because you aren't paying down the principal during the course of the loan.

In other words, most all short-term hard money loans you'll be looking at will require monthly interest payments and a balloon payment at the end of the term. This balloon payment is generally made from the proceeds of either a) a sale of the subject property or b) refinancing the existing debt.

You may be instead referring to an 'interest reserve' whereby the lender can build in the interest payments to the loan structure.

This availability will be based in part on your deal (how much room there is to increase the total loan amount and still adhere by lender underwriting guidelines) and also the lender (lenders vary in their tolerance for interest reserves).

Hope this helps,

Michael

Congrats on the acquisition!

Yup, a few good options already mentioned here...

1. Try BiggerPockets --> Network --> Hard Money Lenders --> Filter by state (PA)

2. Google

3. Local REIA events where you can network with other investors who have experience with HMLs in your area, and also local HML reps.

@Mitchell Morgan You will probably need to speak with several lenders, as given the 1 day of seasoning, hard money lenders are very likely to look at your cost basis (what you purchased the property for + what you spent to renovate the property (if any)).

Some may feel comfortable just with the as-is value of the property, and not weigh your cost basis so highly, but those lenders are likely to be few and far between.

A few notes...

- Generally speaking, hard money lenders will want to see that you have 1/3rd of the requested loan amount liquid. This is not a hard and fast rule, but just a general guideline. Hard money loans are typically used for a short duration on non-cash flowing properties. If an interest reserve is not built into the loan, then the payments will need to come from somewhere. Again, liquidity requirements vary, but for a hard money loan, the borrower's liquidity is typically an important underwriting consideration from the lender's perspective.

- It seems to me that hard money lending requirements have become more stringent in recent years. However, hard money lenders do seem to vary in which underwriting guidelines they have flexibility on.

- Probably the best use of a hard money lender is for some short-term capital need, such as the purchase and renovation of a property, given the generally expensive interest rates and points commonly associated with them. Also, for borrowers who do not qualify with traditional capital sources, or need fast execution on a deal, hard money lenders can be useful capital sources.

Congrats Kyle!

How did you finance the project?