All Forum Posts by: Michael Kinsella

I still can't wrap my head around the idea of hard money and private money when it comes to paying it back. My understanding is that I will get a loan from either source and pay the interest every month and when I refinance the home I will pay the lender back the initial investment. How does one truly do this with no money ?

You don't, as @Jay Hinrichs said above.

Unless the property is cash-flowing (rented out), then you will be responsible for the interest payments, which means you need the liquidity to support those. If there is enough room in the loan, then sometimes an interest reserve can be built in whereby the interest payments are collected upfront.

The two primary exits from short-term loans are a sale of the property or a refinance as you mention above.

Even with loans that are "100% LTC", there is still a capital outlay for the renovation work which is floated throughout the renovation process, and there are still interest payments that need to be made.

What shorter-term lending options are available to smaller real estate investors and what are the terms that are generally available (max lending, interest rate ,security, etc.)?

Leverage:

Generally up to the lesser of a) 90% LTC (loan-to-cost) and b) 70-75% LTARV (loan-to-after-repair-value).

It's important to note that these parameters can vary somewhat amongst capital providers, e.g. 85% LTC, 100% LTC, 65% LTARV but usually not drastically so.

- LTC or loan-to-cost: This is simply the total loan amount divided by the total project cost, or total loan amount/total project cost.

The total project cost is generally calculated as,

1. The purchase price + rehab if the property is not already owned.

2. The purchase price + rehab $ spent + rehab $ remaining if the property is already owned.

- LTARV or loan-to-value: This is simply the total loan amount divided by the after-repair value of the property (what the property is worth following the completed renovation), or total loan amount/after-repair value.

Interest rate:

Generally 8-13% within the HML space.

Beyond just the interest rate, it will be more helpful to compare the total cost of capital between lenders.

The total cost of capital includes other costs like origination points and fees, so that you can get a true apples-to-apples comparison amongst lenders.

Security:

Most HMLs put a 1st lien on the subject property and stipulate that they must be the "1st and only" lien. Beyond this, most HMLs require a PG (personal guarantee).

Who are the best lenders in the Chicagoland area that work with house flippers and about how much cash will I have to save to be able to qualify for a loan on a fixer upper?

@Paul De Luca is correct. Two reasonable ways to get started in your lender search,

1. Network --> Hard Money Lenders tab on BiggerPockets and filter by state.

2. Go to local REIA events and gather recommendations from other investors.

A reasonable rule of thumb is 1/3rd of the loan amount liquid; this doesn't necessarily mean just cash.

You'll need to bring a portion of the funds for the acquisition, the initial capital outlay on the renovation (which you'll need to float throughout the renovation process), and you'll need to be able to service the debt, i.e. make interest payments.

I am having a really hard time finding a lender that will lend on 5 doors

This isn't all that surprising. Residential investment properties are generally grouped into 1-4 units and 5+ units from a lender's perspective. The former is more popular.

I am looking for a 90% or more LTC fix and flip, ideally. I have good credit and its an undervalued property.

All sounds good. You're going to be at the top of the market leverage-wise with a 90% LTC request.

Any i have found that advertize those terms have horrendous online reviews including being unable to actually close.

Continue to turn over more stones. Speak with local banks and HMLs. Below is a good list to start with...

1. Network --> Hard Money Lenders tab on BiggerPockets

2. Local REIA events --> Get investor referrals (these will also have local lender reps and you can ask for referrals from them as well)

Keep us updated on the outcome!

Sounds like it was overall a positive learning experience!

Nice deal!

Great job!

Plans for another fix and flip soon?

Any recommendations for lenders that would consider loans as small as 50k-80k on some properties in Jackson County, Fl. No current liens but these properties have tax deeds, not warranty deeds if that matters.

That as-is value is going to make obtaining financing more difficult for sure.

Financing options drop off pretty steeply below a certain dollar amount because foreclosure costs for lenders can be significant.

Your best bet may be to connect with some local private lenders (local investor meetups/referrals are a good starting point for this) or local banks.

If for example we bought a rental for $100,000 and we put down 10,000 and our other 2 investors put in $5,000 each, how would you recommended paying them so that it benefits everyone? We would be doing all the work and management.

This is a fairly common structure in real estate, but it's essentially a question for your other 2 investors. 

That is to say, what do you feel is fair and what will they agree to?