All Forum Posts by: Mark Safrin

A HML like me is happy to lend you as much money as possible capped by a % of the LTV and % of purchase (plus rehab $ which is separate). I am motivated to lend you the maximum my underwriters will stand since I personally get a microscopic percentage of what I lend you.

If there is extra equity for you to take out from the property under the above caps then sure, you can use it for the extra expenses like carrying costs. However are you not already probably extracting the maximum you can of the As-Is value or purchase in order to make the purchase? A HML lends on Hard assets. On what should I lend you another 6 months of carrying costs?

I hope this answers your question. 

As I advise my potential starry eyed borrowers - I can lend money but you will need extra money for:

- Money down for the purchase deposit, you (or your motivated seller/investors/relatives) WILL have skin in the game,

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

- loan carry costs for the duration of rehab/flip or stabilization. This may be longer than you expect.

- rehab money until at least the first milestone since our draws are paid in arrears. 

- money for cost and time over-runs of the above. Did I mention that this might be longer than you plan?

Many newbies in my experience do not tend to purchase way below LTV, tend not to have deep reserves, are not good at estimating LTV and whose rehab cost ideas are somewhat inadequate barring a miracle as are their flipping time expectations.

This is not to discourage anyone,  Heaven forbid. It means you should have your plans and numbers looked over by someone who is experienced who can point out shortfalls and potential issues. 

Best wishes in your endeavors. 

Delmas, as Hard Money Lenders we want to know the following data points:

- Where is the investment property?

- How much is this property worth As-Is?

- Is this a fix&flip/bridge/rehab loan or a short or long term refi?

- If this is a purchase what is the purchase price?  If this is a rehab, how much rehab $?

- What is your credit score?

- How many flips etc... have you done?

Once we have this we can give you a reasonable idea of what our terms on a loan will be.

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Seasoned borrowers approach us with this data, we give them ballpark terms, they ask us to send a Loan application form. It takes about 3 minutes. Sometimes they have excellent questions - another 3 mins. They want to join my brokers program/network? Certainly! Another 2 mins.

Newbie borrowers sometimes call (I'll exaggerate here but all too often only slightly) ....

...wanting a long conversation (unless I can head this off at the pass) about their Real Estate Dreams, what is the difference between % of purchase and % of LTV, what does points mean, why can't I lend 100% of the purchase, and do I have creative ways of them funding 100%, go on at length about what amazing ARV this property has, how their credit score USED to be 800 but is now 510 and why this is so - in detail, can I do this deal in 3 days since they have spent the last 27 days of their contract apparently waiting for both neurons to meet up somehow, all about their troubles in life and somewhere near the end can I please lend them $30K even though the advertising they are responding to - but apparently didn't bother reading clearly says $80K minimum (and also answered most of their real questions)... usually all spoken really, REALLY slowly with long pauses while they write it all down in long hand and I have to repeat everything about 3 times AND they get offended if I try and cut this short by offering to just send them a loan application form so that I can give them a terms sheet sometime this century. During all this I have one incoming call after another hopefully going to voice mail, including our underwriters who urgently need my input regarding my $15 million deal that's meant to close at 4pm and I'm multitasking by writing on Bigger Pockets for stress relief (guess what type of call I'm on now?) as an alternative to taking out my slight hair-pulling impatience on my colleagues via judicious application of a baseball bat.

Consider being slightly more like the seasoned borrowers mentioned above and perhaps just slightly less like the latter example, and we should get on just fine. ;)

Best wishes.

 Thanks Amy. Will PM you due to client privacy. 

Thanks Tim.

Don't know if this has been converted (probably not) but yes we suggested using similar 1 unit SFR comps with a multiplier of some sort.

But alas no appraisers (used by this company) to date. I guess as we gradually expand the number of states we lend in to all 50 we will and are encountering interesting issues we haven't seen before. 

I really _hate_ to decline a loan over some (ridiculous?) technicality from our side.

I have a triplex I'm lending on in Louisiana. It's in a smallish town but easily makes our 50K MSA minimum.

Our underwriters prefer comps to be the same number of units, within 10 miles and 12 months. 

There simply are no triplexes sold in this town within this time.

An appraisal inspection was done with our usual national appraisal co and the appraiser wanted to use comps 30 miles away and in the city of Baton Rouge. After a great deal of conversation, the appraiser, who at first was willing to explain to our underwriters why he used the comps he did, withdrew his offer to write up the appraisal.

The same appraisal company reached out to 5 other appraisers who declined to take this on.

This is the first time in years of lending and thousands of loans that we have come across this situation. Maybe we have just been lucky till now.

Suggestions welcome.

 Not 100% of the time.

I would be wary of a HML who wants to lend you 100% of purchase. Most of us want you to have some skin in the game.

I would check for 2 things. 

1. What type of interest and points do they offer? I've seen a 100% deal like this with, ahem,15% interest and 7 points at closing.

2. Who will own the LLC that owns the property and are there special provisions that if you don't make payment you are booted off the LLC? If yes it means no foreclosure is necessary you just lost the property and all equity.

As Hard Money Lenders we lend to fix and flippers every day. Including in TX. Most of them somehow manage to do the deal and close using our loan without a real estate agent necessarily being involved. 

If conventional loan sources do not suit you either because you or the property don't qualify, or the length of time till closing is too long to get the deal done, consider a HML. More expensive than traditional loans but much more flexible and usually considerably faster in closing.

It is not clear to me how many deals (fix and flips?) you have done. At least one but maybe more. As you become more experienced and can do the maths yourself better, don't feel constrained to only consider projects that FHA loans or any conventional loans for that matter can cover.

Real Estate Agents like doctors or even all powerful lenders ;) are a resource. Loyalty and a personal connection is great and will hopefully be of great benefit, but if one of the above no longer suits you as you develop your skills and career, see if another is a better fit.

Best wishes in your endeavours.

Hard Money Lenders lend either short term rehab/flipping/bridge Interest only loans typically between 12-24 months or long. The interest rates are higher than conventional loans and a small percentage of the loan called "points" is paid on closing. They will often close considerably faster than conventional loans and will consider loans and borrowers that conventional lenders will not - such as rehabbing loans.

HMLs secure their loan with a lien on the property. They typically don't look at your income or tax returns but will often vary what they can lend you depending on your experience flipping/rehabbing and your credit score.

Many HMLs will have a minimum loan size, say $75K or $150K.

HMLs will also usually still require you to have skin in the game, funding perhaps 90% of purchase or 75% of As-Is value whichever is less, plus 100% of rehab in arrears draws.

Besides the down-payments you you also need capital for closing costs, Appraisal, rehab (if any) till the first draw milestone and of course for servicing the loan at least until you have flipped or stabilized. And some more in case of costs over-runs and for instance differences between what you think the property is worth and what the appraiser things it is worth. 

Hope this helps.

@Kevin Periera I can only imagine that some questions need to be asked to a HML, one who lends in the state in question, either in person or the phone. Or a real estate lawyer.