All Forum Posts by: Mark Safrin

Barry, if you are using a HML then, glancing at your numbers, you are probably underestimating the closing costs.

10% interest (only) is realistic but $2.5k closing costs is IMO not. You are likely to pay 2-3% in closing points (could be higher) plus appraisal fees ($400-500?) plus title costs ($750?) plus any other fees that your HML may feel like charging.

Don't forget property insurance for probably $1M liability. 

So unless you have lined up a HML and know your closing costs, I would be a lot more conservative with them in your calculations. 5k-7k. Best be conservative and be pleasantly surprised if its less than be shocked when its more.

As an aside, will you have reserves set aside for cost over-runs and emergencies?

Best wishes.

There certainly is. You just have to find a fantastic deal. HMLs such as ourselves will lend up to 90% of purchase _provided_ the loan is less than 65%-75% of LTV (as is value). So sure, if you find a property that you can buy for considerably less than it's current worth you might only have to pay 10% down. HMLs like us can also finance up to 100% of rehab.

Having said that, money down is only part of the capital you will need. 

You will also need money for closing costs of various descriptions, rehab money (if this is a rehab) to finance up to the first draw which is paid in arrears, money to service the loan until the property is stabilized or flipped (HML money is not cheap) and of course extra for cost over-runs and time over-runs and emergencies which will surely be encountered.

Best wishes with your plans. 

I should add to Dave Foster's answer that banks, as I understand them, are not eager to lend for rehab. That's what HMLs do every day.

Furthermore if you do go the HML route, no, a HML will want a first position lien against the property. Though some like ourselves do allow a second position/Mezanine lien.

Best of luck.

@Sthefany Lamoureux

I only have expertise regarding those refinancing to our (HML) 30 year fixed loans. Personal income is not considered however Mid FICO, DTI and LTV is. Also whether it's a refi or a cashout refi.

Can't speak for others but I would be surprised if there is a rehab loan without an ARV valuation/consideration.

When lenders like ourselves say that we are happy to lend 100% of rehab money - nevertheless it still has to make sense for an asset secured loan. 

You will note in my first post on this thread I inserted the word "probably" before "100% of rehab". ARV is the reason.

If there is an ARV loan cap then the appraisal for the loan will (also) include an ARV estimation.

I would suggest that most investors who turn to HMLs do it for other reasons than the loan number limits set by conventional lenders.

It is usually because they need short term loans that are asset rather than income based or they are rehabbing which many banks don't like funding or their deals need loans they close in 2-3 weeks rather than 30-45+ days.

Once the properties are stabilized banks and commercial lenders are where most but far from all of our clients go to refinance the short term loans we lent them. Indeed they take it for granted that they can do so.

Interestingly, we have found quite a lot of interest in our (still Hard Money) 30 year fixed fully amortized loans. For refis. The interest rate is lower than our short term, interest only loans but still higher than conventional lender loans. So there are evidently lots of people out there who still find they cannot or would rather not refi with conventional lenders. Some of them just prefer the ease of using a HML, some are income poor but asset rich and some, I guess, just like to use one lender they have come to trust.

Sang. Welcome to the world of Real Estate Investing.

You can ask whatever you want but most Hard Money Lenders will not give you 100% of what you need to purchase a property. They want you to "have some skin in game".

So we will lend you a portion of the purchase plus (probably) 100% of the rehab costs. Rehab money however is held in escrow and released in draws, in arrears,  as you complete each milestone. 

Therefore, using us as a HML example, we will lend you whichever is lower of: 65% LTV (the current, As-Is worth ofthe property) or 90% of the purchase. Whicheve is lower. As you get more experienced, for future deals we can contemplate 75% LTV.

That's what we can give you up front when we close the loan.  You may also draw the rehab money in arrears as complete each milestone.

So you will need money down, this is the portion of the purchase that we do not finance.

You will also need money (from somewhere) for:

- loan closing costs including points, fees, insurance, title and appraisal.

- rehab costs at least until the first milestone.

- servicing the loan, HMLs are not cheap, at least untill you have stabilized the property which means you have leases in place and rent money coming in to hopefully service the loan.

- cost overruns for when, not if, your rehab is more expensive than you estimated, when it takes you longer to rent out the property than you hoped, or any one of a thousand possible unexpected contingencies. 

In your $400K example, the best you can hope for is $360k for purchase (90%) _presuming_ that the property is worth A LOT more As-Is to make 65% of LTV higher than $360k. Plus of course your $50k rehab will await you in escrow.

Best wishes in your real estate BRRRR career.

Indeed we do. As a matter of interest I both live and work in Cook County. Our branch office is located in it - Lincolnwood.

@Nicholas Krogmann, perhaps 15% and 3.5 points is common in your state. I _wish_ I could lend at those rates. ;) Alas in the states we lend in, the going rates for HML loans is usually less.