All Forum Posts by: Michael Kinsella

Hi Syman,

It may be helpful to attend local REIA events and speak with other investors who have pursued similar strategies and have first-hand experience with lenders in your area.

Online research can be helpful, as @Robin Simon alluded to, but I think you'll be hard pressed to get a more reliable reference than speaking with local investors at an in-person event.

Best,

Michael

It probably makes sense to query both and see what options are available.

You can compare 1) total cost of capital 2) leverage 3) other loan quote details such as prepayment penalties

Some general differences;

Banks

- Typically cheaper cost of capital (lower interest rates, less origination fees)

- Stricter underwriting guidelines

- Possibly more conservative leverage (lower LTV caps)

- Slower process

Non-bank lenders w/ DSCR programs

- Generally slightly more expensive (higher interest rates, greater origination fees)

- Less strict underwriting guidelines

- Possibly higher leverage available (higher LTV caps)

- Faster process (although generally not very fast)

Hope this helps,

Michael

Hi Alan,

A few points to consider;

- Many HMLs will stay away from primary residences as collateral and will stick to non-owner occupied investment properties, so your options are likely to be limited.

- You may want to speak with some local banks initially, just to gauge their interest. You are correct in that banks or traditional capital sources are likely to be more stringent in their underwriting requirements, but they can potentially provide cheaper capital than HMLs if that is a concern.

- Some HMLs (using that term loosely) provide ground-up construction financing. It seems that you are looking to both acquire a lot and build on it. As such, you'll probably want funds for the acquisition of the lot and also the construction of the subject property. Do note that construction funds are typically structured as a holdback, so they aren't released upon the initial funding of the loan, but typically on a reimbursement basis once some portion of the work has been completed and you've requested an inspection/construction draw.

- As @Jay Hinrichs said above, if you are looking at funds for solely acquiring land, your options are likely to be quite limited. HMLs who provide land acquisition or bridge loans are generally looking for larger deals, and have strict loan minimums.

Hope this is helpful,

Michael

Well done.

As @Robin Simon said above, it looks like it will make for a nice AirBnB!

Unlike traditional bank loans, which are based on the borrower's credit score and financial history, hard money loans are based on the value of the property being used as collateral.

The above has become less true over the years it seems.

Most HMLs now seem to look at credit scores, and the vast majority seem to have implemented credit score minimums.

Additionally, HMLs will look at financial measures, such as a borrower's liquidity, to gauge likelihood of repayment.

You're certainly right that the traditionalist definition of 'hard money' is lending on the value of the property, and not taking much else into consideration.

You are correct; lenders generally put 1-4 unit and 5+ unit residential investment properties into different buckets.

As others have said, a 25% downpayment is more likely in line with current market conditions.

You can speak with some hard money lenders, but expect for there to be about a 4%+ cost delta (pay about 4%+ more than using a traditional capital source, such as a local bank).

Hi Troy,

Local banks are one option, as @Pradeep Shrestha alluded to above.

For HMLs, you can do the following to curate a list of prospective lenders.

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

2) Local REIA/meetup events, where you can get referrals from local investors (to local banks/HMLs) and network with lender reps.

Best,

Michael

Hi Sam,

I don't anticipate this being a huge deal for most HMLs.

If you aren't current on some of those loans, that would be a red flag for an underwriter.

However, most HMLs are focused on other metrics in the following categories;

1) Collateral/the deal

- What is the as-is value of the property (and after-repair value if there are going to be renovations)?

- What is the purchase price?

- What is the scope of work (if there are going to be renovations)?

- Is the subject property in a well-populated area where there is evidence of properties trading frequently?

2) You, the borrower

- What is your comparable deal experience?

- What is your liquidity?

- What is your credit score?

3) Financing request

- What is the requested loan amount?

- What is the LTC/LTV?

- What is the rehab $ amount? 

Answers to those questions are generally going to be more interesting from a HML perspective on a short-term financing request.

I second what @Jay Hurst said, that is a cool property!

Where are you at in the BRRRR process? It sounds like you've completed the renovation, and are about to rent the property?

Another one! Congrats Katlynn.