All Forum Posts by: Ryan Stuckey

Have you ever wondered how the numbers work with the BRRRR financing process? This is a two-step process with a short-term purchase and rehab transaction followed by a long-term refinance after the rehab period is finished.

Then check out our webinar HARD MONEY MATH 101, where in about 20 minutes we will walk you through the process with a numerical example. You will see the awesome wealth building potential for following a sequential, disciplined process of acquiring, rehabbing, and holding real estate properties over the long term.

Hard money is a very useful type of real estate investment financing to build wealth following a structured process. It's time to get past any out-of-date, negative reputation it might still have and for ambitious investors to know how to utilize it.

Free to watch and it's not long at all:

https://hardmoneymath.com/financing-real-estate-investments-webinar

Quote from @Mike Klarman:

I can tell you, if you go into this with 10k and even if someone does give you 100% financing up to 70% btw, they forget to mention that and properties on market when the rehab is added in, they rarely have a 70% project cost to ARV ratio. Cause if they did, would they be on market for 98 days?

10k is 10 cents in this world.  I've seen deals where the investor was making 50k on paper and they wound up losing 50k.  You're telling me you have 10K?  If you came to me, I wouldn't even put you in a loan or offer you one.  Why would I ask you to jump into a pool and then ask you to also hold these weights?

You have to be careful.  Agents are trying to sell.  Lenders are trying to lend.  Brokers are trying to broker.  None usually have your intentions ahead of their commissions.

With 10k, do not, I repeat, do not even think about a project.

As a lender, I agree with Mike. 10k is not enough savings to support REI of this type. You should have absolute minimum 20k in available capital and that is to support a modest project in a lower-cost area of the country (e.g. some but not all parts of IN). Having 30-40k is more robust and would enable you do a bit more. Most lenders will want a 15-25% down payment for no/light experience on a purchase and rehab project. Closing costs are another 6-7k at least. We offer 100% financing (i.e. no down payment) but still have minimum liquidity requirements above this 10k number....

Just go to longhorninvestments.com and you will find a very experienced and reputable hard money lender in Texas (and based in Texas as one might think from the name).

Quote from @Kyle Vogeler:

From my experience, it is very hard to get a 100% financed deal. Most lenders just won't accept you not having any "skin in the game". However, that doesn't stop me from trying to get my deals 100% financed...eventually I may find a way to make it happen. 

Personal story - I've had a deal under contract before where the bank would provide 75% of the financing. I then made a deal with the seller where they would pay for ALL closing costs and hold 25% of the debt with NO lien on the property. It would've been a true 100% financed property. I thought the bank would give it the "OK" since there was no additional lien on the property, but they still said no and lowered the amount they were willing to lend. I was upset to say the least. 

You simply haven't found the several hard money lenders willing to do "100% financing"* on purchase and rehab as part of their program. Or the private lenders in your area who might do that (especially if they know and trust you).

Asking "banks" for this will go nowhere.

Even when 100% of purchase and rehab costs are covered, that's not everything. Closing costs are not nothing. By paying this respectable chunk of money, the borrower HAS SKIN IN THE GAME (enough for the hard money lenders to feel so).

*"100% financing" means: coverage of purchase + rehab costs (realistic, especially with some experience)
"100% financing" does not mean: coverage of purchase + rehab costs + closing costs (not realistic) 

Quote from @Cam Schwartz:

Quote from @Deborah Wodell:

I’ve had quite a few new investors come in lately asking about 100% financing through hard money — meaning no money down, with both the purchase and rehab fully covered by the lender.

From what I’ve seen, that’s pretty rare unless there’s some creative structuring involved.

I know it can sometimes be done through JV partnerships, seller financing in second position, or gap funding — but even then, it's usually based on the deal's strength, experience, and having the right connections.

For those of you who’ve been in the game a while — have you seen a true 100% financing deal happen for a new investor? If so, how was it structured?

Curious how you all explain this to beginners who are eager to jump in but don’t have much capital yet. Would love to hear your insights, advice, or even deal examples!

Hey Deborah, 100% financing is possible to your point but often done through creative measures similar to those you've mentioned.

The primary reason lenders require a down payment of some form is to ensure alignment of incentives. Its easy for a borrower to walk away from a difficult project if they don't have any cash tied up - this creates challenges for lenders who aren't always set up to take over the investment.

I've seen plenty of 100% financing offers in FB groups but presume many of them are illegitimate. For reference, our best offer is 10% down + 100% of rehab costs.

As I wrote above: 

For a short-term rehab project, 100% financing on purchase and rehab is not all that uncommon. Several regional lenders offer it in some form, usually with experience requirements but not in every case.

....these companies all have websites and are easy to find online or offline (at investor events). It's not "creative finance" to obtain it.

They are not posting on FB groups offering 100% financing at 3% with a gmail address.

Borrowers getting 100% financing on purchase and rehab still have respectable cash invested into the project (e.g. between $6-20k closing costs depending on loan size). Sure, that's less $ than contributing a down payment but still enough to keep them on the whole motivated to finish (otherwise these lenders would not offer the program, they're experienced at this and not dumb).

Short-term loan size at 70-75% of ARV is a routine rate-term refinance on the eventual long-term loan. Regardless of whether the borrower has 90/100% LTC or 100/100% LTC on it.

Of course, the borrower has to execute the project well (stay within the rehab budget, stay on schedule to control holding costs, do quality work) to achieve the expected ARV at the end of rehab.

If off a little on final ARV, then the rate-term refinance up to 80% LTV helps to absorb that difference. If off a lot, well then it was not a great project performance.

For a short-term rehab project, 100% financing on purchase and rehab is not all that uncommon. Several regional lenders offer it in some form, usually with experience requirements but not in every case. 

Of course, normal profit margins are needed/expected, so the loan cost is usually capped at 70-75% of ARV and that right there is the margin of safety. Purchase and rehab costs kept within this ceiling would be 100% covered. That's correct - no money down. No gap funds, second lien, seller financing, etc needed. Very simple.

Of course, lender fees and third-party closing fees (title/insurance/appraisal) are not typically covered and are expected to be the borrower's skin in the game. Thus, available liquidity of at least $20-25k+ is expected to cover closing costs, a few interest-only payments, and partial rehab spending before draw reimbursement.

Fees are usually reasonable for hard money and in line with the higher leverage offered in such cases - 11-13% and 2-4 points, i.e. perhaps a tick higher than the mass of 10-20% down offerings out there.

There are a lot very experienced financing professionals here that know the ins and outs of different forms of financing. There is a very thin use case for credit card stacking on short-term real estate value-add projects but it's not appropriate for most projects and most investors. It has extreme negative results if the funds are not paid off during the 0% period.

What you're posting in several forums here (with your new account) is just a thinly veiled attempt to promote your CC stacking services, which should be kept in the Classifieds area.

Credit card stacking normally comes with a 10-15% "success fee" on the amount of funding obtained and this fee is paid to its promoters/organizers claiming 0% funding.

Hard money is actually cheaper if you have the normal/targeted 3-6 month flip project. 12% for 6 months is 6%.

Quote from @Gregory Davis:

I work part time as an account exec for a hard money lender, and there are a couple things you need to know:
1. Hard money loans are very expensive (think 15% & 5 points)
2. They're usually short term, and always should be, so have an exit strategy for paying the loan off within 3-12 months.
3. They're low LTV (generally 60-65%)
I suggest you establish a relationship with one, as they tend to know the market and industry better than almost anyone else. They can immediately tell a good deal from a bad one, so they're good to bounce ideas off of.
Good luck!
Brian

Sorry but I need to add comments to yours. I am very familiar with hard money:
1) you will mostly find a 10-13% interest rate range in the market depending on the combination of previous experience with rehabs and credit score. Points will mainly range from 2-4% depending on the above experience/credit and also the lender itself. You might see poor terms like 15% interest/5% points but these are on the very uncompetitive range of the spectrum and one can do much better. But interest of even 15% for ~6 months (i.e. 7.5% cost) is rather tiny compared to ROIs at 50-100% (which takes work to pull off of course). Hard money is supposed to be fast and reliable. The alternative is typically to search for private lenders at 10% and 2% and who hopefully won't run out of money after one deal. 
2) indeed, they are typically a 6-12 month term with no pre-payment penalty and the lender wants you to pay it off ASAP (and do another one)
3) you are referring to loan size to ARV (LTARV) and one can easily get to 70% here and 75% is also possible in certain cases. LTARV of only 60-65% would be uncompetitive.