Hard Money Loans

[DukeDeValentino]

Hello Everyone,

I recently got my license to become a Mortgage Loan Originator. I have been working with a broker for a couple months now. I am interested in getting into real estate investing, specifically to do rehabs and flips with the ultimate goal of buying homes to keep as rental property. I have a few questions:
1. Does anyone know the best ways of generating leads as an MLO? I have been cold calling and trying to build relationships with realtors in the area. It has been working okay, but nothing too great.
2. Hard money loans for flips: I have found quite a few lenders that provide hard money loans with a down payment of 10%. I was wondering if anyone knows of any legit lenders who provide hard money loans with a smaller down payment? I have found a few companies that claim to provide 100% of funding for the home and the rehabs, but the companies seem sketchy. Also, I am sure it's possible to get a hard money loan with a smaller down payment, but I am assuming it is only for those people whom have experience and who they have already worked with.
3. I know a few people who do rehabs and flips, but they tend to be very limited with the information they provide, which is understandable since I would be competition for them.

I am extremely thankful for any information anyone may be able to provide!

 

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[WJK]

Hello Everyone,

I recently got my license to become a Mortgage Loan Originator. I have been working with a broker for a couple months now. I am interested in getting into real estate investing, specifically to do rehabs and flips with the ultimate goal of buying homes to keep as rental property. I have a few questions:
1. Does anyone know the best ways of generating leads as an MLO? I have been cold calling and trying to build relationships with realtors in the area. It has been working okay, but nothing too great.
2. Hard money loans for flips: I have found quite a few lenders that provide hard money loans with a down payment of 10%. I was wondering if anyone knows of any legit lenders who provide hard money loans with a smaller down payment? I have found a few companies that claim to provide 100% of funding for the home and the rehabs, but the companies seem sketchy. Also, I am sure it's possible to get a hard money loan with a smaller down payment, but I am assuming it is only for those people whom have experience and who they have already worked with.
3. I know a few people who do rehabs and flips, but they tend to be very limited with the information they provide, which is understandable since I would be competition for them.

I am extremely thankful for any information anyone may be able to provide!

I have been buying owner-carry-back TDs for 45 years -- starting in 1976. I was doing "flips" in the Los Angeles ghetto when we still called them "Equity Purchases". I will have Mortgage Broker's license by next summer when our construction season starts... so I know a bit about what you are trying to do. I will be lending my own money -- not doing the traditional MLO lending. Maybe I can help with some advice...

I will NOT lend to people doing "flips". I like my money and I don't want to lose it. Why? That market is very soft right now. Most of the people out there don't know how to do their numbers and they are going to lose money on their deals. NO. 10% is not enough down -- especially on a flip. Before you loan your money on a flip, try doing one (or a bunch of them) yourself. If you do lend your money, you're going to get the property back all torn up and your money will disappear with the borrower when they exit stage left. Then you will need to put a lot of time and money into the deal to recover even a part of your investment. How much pain do you have to endure in order to learn that part of the business?

Have you managed property before? You are talking about fixing and holding. I do that every day with my mobile home park. I own the mobile homes and I rent them. It's a full-time, dirty, time-consuming job.

Here's what I suggest. Buy a small unit building (2-4 units). Move into it. Fix it up one unit at a time. Mow the lawn. Plant the flowers. Paint, paint, paint everything. Deal with the tenants. When you get it fixed up in a couple of years, you can buy another and do it again. IF you can save enough money over those couple of years, buy a "fixer" and do that one the same way. You can build up some remarkable handyman skills within those projects.

In the meantime, build up your knowledge of the flip business and your contacts. It's probable that one of those projects that these hard money guys are funding is going to go belly up. Your dream is to pick up the property for a song. BUT, you must have the cash in your hand to take over the project!

 

[WJK]

Many years ago, I gave a young man the same advice. It took him 10 years to become financially independent and he didn't sell any of his properties. He worked his regular job during the day for those 10 years. He spent all of his spare time working on his properties. And he self-funded his projects one dollar at a time. Then he started paying down his loans using the snowball program. He did great! I'm really proud of him and his diligence. You have the advantage of being in the lending business. I bet you can do it faster.

 

[DukeDeValentino]

I have been buying owner-carry-back TDs for 45 years -- starting in 1976. I was doing "flips" in the Los Angeles ghetto when we still called them "Equity Purchases". I will have Mortgage Broker's license by next summer when our construction season starts... so I know a bit about what you are trying to do. I will be lending my own money -- not doing the traditional MLO lending. Maybe I can help with some advice...

I will NOT lend to people doing "flips". I like my money and I don't want to lose it. Why? That market is very soft right now. Most of the people out there don't know how to do their numbers and they are going to lose money on their deals. NO. 10% is not enough down -- especially on a flip. Before you loan your money on a flip, try doing one (or a bunch of them) yourself. If you do lend your money, you're going to get the property back all torn up and your money will disappear with the borrower when they exit stage left. Then you will need to put a lot of time and money into the deal to recover even a part of your investment. How much pain do you have to endure in order to learn that part of the business?

Have you managed property before? You are talking about fixing and holding. I do that every day with my mobile home park. I own the mobile homes and I rent them. It's a full-time, dirty, time-consuming job.

Here's what I suggest. Buy a small unit building (2-4 units). Move into it. Fix it up one unit at a time. Mow the lawn. Plant the flowers. Paint, paint, paint everything. Deal with the tenants. When you get it fixed up in a couple of years, you can buy another and do it again. IF you can save enough money over those couple of years, buy a "fixer" and do that one the same way. You can build up some remarkable handyman skills within those projects.

In the meantime, build up your knowledge of the flip business and your contacts. It's probable that one of those projects that these hard money guys are funding is going to go belly up. Your dream is to pick up the property for a song. BUT, you must have the cash in your hand to take over the project!

Hello WJK,

Thank you very much for the reply to my question and for the valuable information you have provided. My main goal is indeed to buy rental property for the cash flow and my primary goal was to buy a 4 unit small building and live in one as you stated above. The main reason I am interested in flipping homes for now is to generate capital to use for the purchase of the 4 unit building. I do know a couple investors in the LA area who do this and have been very successful with it, but only give limited information regarding how the process works. I do know a few hard money lenders and private investors who lend funds for flips, but the majority of them ask for around 30 percent down. I am in the OC/LA area where prices of homes (even fixer uppers in ugly areas) are very expensive. Even if I go to the boondocks and attempt to purchase a beat up home it will still be roughly 300k which would require a downpayment on a hard money loan of roughly 100k which I do not want to tie up for just one home flip. Do you or anyone else here know ways I can reach out to private investors in the area or hard money lenders who will lend out money with less down?

 

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[WJK]

Hello WJK,

Thank you very much for the reply to my question and for the valuable information you have provided. My main goal is indeed to buy rental property for the cash flow and my primary goal was to buy a 4 unit small building and live in one as you stated above. The main reason I am interested in flipping homes for now is to generate capital to use for the purchase of the 4 unit building. I do know a couple investors in the LA area who do this and have been very successful with it, but only give limited information regarding how the process works. I do know a few hard money lenders and private investors who lend funds for flips, but the majority of them ask for around 30 percent down. I am in the OC/LA area where prices of homes (even fixer uppers in ugly areas) are very expensive. Even if I go to the boondocks and attempt to purchase a beat up home it will still be roughly 300k which would require a downpayment on a hard money loan of roughly 100k which I do not want to tie up for just one home flip. Do you or anyone else here know ways I can reach out to private investors in the area or hard money lenders who will lend out money with less down?

You just missed the whole point of my answer. Good luck.

 

[Xavier X]

Hello WJK,

Thank you very much for the reply to my question and for the valuable information you have provided. My main goal is indeed to buy rental property for the cash flow and my primary goal was to buy a 4 unit small building and live in one as you stated above. The main reason I am interested in flipping homes for now is to generate capital to use for the purchase of the 4 unit building. I do know a couple investors in the LA area who do this and have been very successful with it, but only give limited information regarding how the process works. I do know a few hard money lenders and private investors who lend funds for flips, but the majority of them ask for around 30 percent down. I am in the OC/LA area where prices of homes (even fixer uppers in ugly areas) are very expensive. Even if I go to the boondocks and attempt to purchase a beat up home it will still be roughly 300k which would require a downpayment on a hard money loan of roughly 100k which I do not want to tie up for just one home flip. Do you or anyone else here know ways I can reach out to private investors in the area or hard money lenders who will lend out money with less down?

Try asking your question on the DeeperPockets forum. You'll get a more varied range of replies, with which you can arrive at your best course of action.

 

[WJK]

Try asking your question on the DeeperPockets forum. You'll get a more varied range of replies, with which you can arrive at your best course of action.

I'm not sure that he needs a better answer. He's a newbie -- he needs a lot more RE experience before he jumps into the deep end. If an investor lends him money to do a project, they are jumping into the deep end with a wannabe. I'm not going to contribute to this situation by giving him advice on how to financially drown himself. He doesn't seem to be willing to go through the learning curve. So, the best I can do is wish him good luck.

 

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[biggeemac]

Most private lenders want more like 30% down. They want to be able to get rid of the property quickly and get their money out of the deal if the borrower defaults. You're unlikely(more likely NEVER) going to find a hard money lender willing to do a 10% down deal. My hard money deals have all been around 30%.

 

[WJK]

Most private lenders want more like 30% down. They want to be able to get rid of the property quickly and get their money out of the deal if the borrower defaults. You're unlikely(more likely NEVER) going to find a hard money lender willing to do a 10% down deal. My hard money deals have all been around 30%.

And on a "flip" they many times want more down. It depends on the project and the numbers. What are they paying for the property? How much work does it need? Who is going to do the work? etc...

 

[Antifragile]

I'm not sure that he needs a better answer. He's a newbie -- he needs a lot more RE experience before he jumps into the deep end. If an investor lends him money to do a project, they are jumping into the deep end with a wannabe. I'm not going to contribute to this situation by giving him advice on how to financially drown himself. He doesn't seem to be willing to go through the learning curve. So, the best I can do is wish him good luck.

This.
#1 rule for investors - know your exit. (How will you get paid back?).


But there is a problem. With inflation out of control, anyone who’s been in our business last few years made great returns. You didn’t have to even good! You just had to be in it. That’s why industry attracts newbies. It’s just part of the late cycle events.

 

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[SteveO]

The difficult part is finding the "deal" and then executing the plan.

If you have an exceptional deal. People will want to give you money. That deal is hard to come by, especially in this market.

The next part is your experience. Hard money will treat you different if you have a track record or skills.

I once found a loan for an 87 unit apartment complex. It was 60% vacant and trashed. 1.8M sale price.

We were loaned 2.4M and given zero payments for 6 months.

Paid them back in 2 years and walked away with a lot of money.

The deal and experience...

 

[WJK]

The difficult part is finding the "deal" and then executing the plan.

If you have an exceptional deal. People will want to give you money. That deal is hard to come by, especially in this market.

The next part is your experience. Hard money will treat you different if you have a track record or skills.

I once found a loan for an 87 unit apartment complex. It was 60% vacant and trashed. 1.8M sale price.

We were loaned 2.4M and given zero payments for 6 months.

Paid them back in 2 years and walked away with a lot of money.

The deal and experience...

Yes, yes, yes. There's no substitute for finding the deal coupled with experience. It is marketable.

This is not a game for the newbies. We're getting close to the end of this cycle. It is a time for caution. It's time to head for your exit plans -- while the buyers are still in the market. The word of the moment is to prepare and then pivot. The RE market can turn on a dime. I can't predict that exact moment, but I can feel the earth moving under my feet.

 

[Guest-5ty5s4]

There is a company that does this -- in Maryland (DYOR). They've given my friend loans with 10% down on flips + all the renovation costs on his estimates.. But he does also have a long track record in real estate, including 2 generations of family also doing real estate.

 

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[WJK]

There is a company that does this called Dominion Financial in Maryland (DYOR). They've given my friend loans with 10% down on flips + all the renovation costs on his estimates.. But he does also have a long track record in real estate, including 2 generations of family also doing real estate.

I applied with them and what they offered was good but not the same because I don't have my friend's track record. Still, those companies do exist!

Yes, they do exit right now... while the market is hot... and you have the experience to pull it off...

 

[SteveO]

Yes, yes, yes. There's no substitute for finding the deal coupled with experience. It is marketable.

This is not a game for the newbies. We're getting close to the end of this cycle. It is a time for caution. It's time to head for your exit plans -- while the buyers are still in the market. The word of the moment is to prepare and then pivot. The RE market can turn on a dime. I can't predict that exact moment, but I can feel the earth moving under my feet.

Agreed. I'm not buying now.

 

[randomnumber314]

For rates, ask around for people who know someone. The guy I use charges 4.25 points up front, six month loans. My last project was a 140 year old house that I had to re-up the loan three times. Things go sideways and you have to be agile enough to handle it.

I also agree the market is very soft now. Unless you find a house under $100k that just needs new carpets, I'd stay out.

 

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