All Forum Posts by: Mike Klarman

So, there will always be fees associated with loans.  The great thing about Hard Money loans is that they are biz to biz loans.  They do not ask for proof of income or tax returns.  On a purchase, if your credit is good, 750 or better, then lots of hard lenders will give you 80% toward the purchase.  Then you will receive a chart with interest rates and you will choose where you want to be.  Some people buy down to the lowest rate they can get, some don't.

Six months ago when rates were in the 3s - everybody was buying down to the lowest rate and now those investors are locked into great rates.  Now, since rates have doubled - not everybody is buying down all the way.  But each interest rate has points associated with it.  1 point = 1% of the loan amount.  To buy all the way down may cost 4-5 points.  Or you can spend 2 points.  You'll choose when it comes time.

If you have any questions about what's expected of the borrower in the lending process feel free to reach out.  Because, honestly, more important than the Lender - most Hard Money Lenders have comparable products with comparable rates, is the loan office you deal with at the lender.  Some loan officers are good and attentive and some are lazy and neglectful.  You may have contacted a good lender but of the loan officer is lazy, slow, and neglectful then you will HATE that bank and it really won't be the bank's fault.

You just need a Hard Money Lender that lends in Illinois.  You don't need a hard money lender located where you are making your transaction.  Some Lenders do just a few states.  Some do a dozen and others do most of the states.  We do 46 states.

So, for fix and flip loans there is a rehab budget included - most these days loan you 100% of the rehab along with a certain percentage of the purchase.  Most times it is 90% if you have at least 3 flips last three years.  If you do not it will probably be 80% - 85%.

Hard Money lenders weigh experience very heavy. You get 1 point for every fix n flip or rental you are holding. Once you reach the magic number of 3 - you get much better terms for down payment and interest rate. These loans are interest only loans so the carrying costs are usually manageable as long as there is a big prize waiting under the rainbow when you sell it for that ARV.

I never saw 85% ARV on a loan. 75% is pretty standard. I can't recall ever seeing 80%.

If your cousin has the experience then he's doing you a big solid bringing you in because then you guys would get that 90/100 with a good rate.  Feel free to message or email me if you have any specific questions about the lending process.

A hard money lender will fund this for you given:

1) your credit is decent 

2) comps support the ARV

3) this may be listed as a “heavy rehab” since the rehab budget exceeds as-is value.  They may want to deduct 5% - 10% of you purchase leverage.  

4) you have some fix and flip experience.  Can’t be a 0 for experience on a project like this.

But I’ve done deals like this where the work costs more than the property.

On Fix and Flips it is possible to get 100% of the purchase but the loan can't exceed 70% of the ARV - which is why it's hard to get that full 100% in most cases.

On a straight purchase, there is always a down payment.  If your credit is very good then you'll get funded for 80% of the purchase.  It is possible to work out a deal with a gap funder who will loan you the down payment and closing costs in exchange for equity in the house.

Most times though you'll need 20% - 25% of the purchase if not a fix and flip.

Hi Danna.  Hard Money Loans are biz to biz loans so yes they require some kind of entity as the borrower, but you personally will be the guarantor if that makes sense.  That's beautiful that you started it with your kids.  I'd make sure that each own less than 20% on the operating agreement so when it comes time to run credit and background it will go smoothly.

Good Luck on that first deal.  Feel free to message or email me if you have questions about the lending process.  Congrats.

I ran your numbers into our software to give you an example of what a loan may look like for you in the Hard Money arena:

Based on a purchase price of 158k and I did a rehab of 40k cause Frankly with what you say I think you are closer to 40k than 20k.

Loan Amount: 170,350 (Thats 130,350 toward the 158k and then the full 40k for rehab).  You are only getting 80ish% because your experience is a 1, once you get to 3 you get 90% of the purhcase.

Your interest rate is 10% - 11% and the payments would be interest only and be $1,194/month - your carrying costs of the project.  Again, once you hit a 3 for experience that interest rate takes a big drop.  The Fix n Flip market relies heavily on experience.

Your Closing Costs:

1) 27,650 would be your portion of down payment

2) You will pay 2 points as origination fees: roughly 2,600

3) You will need to show 9 payments for debt verification.  Bank wants to make sure you can make the payments until you flip or refi: 11k approx.

So you will need to show in liquid reserves approx 42k to close the deal.

Now, the good part: The projected ROI for you the investor is 23%. Where can you get that on your money these days?

Hard Money doesn't care about income.  They care about credit score, experience, and liquidity.  My President likes to say it's the two out of three rule.  If a borrower can come to the table with two out of three of the above then the hard money industry can work with them.  Hard Money is very asset based lending and not so much income based.  That's one of the perks of the hard money/private money industry.

Hard Money is great for the fix and flip.  For 10% down on the pre-repair value you will get a newly renovated asset when finished.  Your local bank may lend you on the purchase but you're drawing dead on rehab funds from them.  Hard Money Lenders will usually 100% of your rehab costs in the loan.

For a 30 year Hard Money could never beat your local bank. They will always be a half point lower, but will they lend to an LLC? Most banks won't because the borrower has too much protection in case of default. With hard money you lose on the interest rate but you win with the recourse.

If you are a small investor and want to build a portfolio quickly then Hard Money is for you.  I've taken on people who have done 1 or two deals and watched them blossom into an investor that does one or two per month.

Hard Money will not ask for proof of income.  That's one of the perks.  For a multi-family fix and flip you can get 90% of purchase and 100% rehab as long as you are a US citizen.  Most of these multi family f n f loans are for 18 months and then after the rehab you should refinance into a 30 yr FRM once you have your tenants.

In short, I've seen this be very profitable.  I've seen investors go from 1 of these to 8 - 10 over two years and build themselves a nice portfolio that offers steady cashflow.

Sometimes in life you just have to hike up your shorts and jump in the deep end you know?

Nice Deal Jason.  Congrats.

If you have any questions about the lending process feel free to ask.