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Hard Money Loans

Bilgefisher

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With our first deal nearly closed, my partner and I are looking to our next deal. Since we shooting for short term flips(not fix and flips), hard money loans appear to be the best method to obtain financing.

Advantages:
-quicker processing allowing us to seize opportunities.
-easier to obtain
-less paperwork
-not restricted by institutional rules from financing any types of properties
-no prepayment penalties or restrictions

disadvantages:
-high interest rates
-finding lenders
-fee's can be anywhere from 1 to 10 points.


So the big question I have, what are some methods to locate hard money lenders?
Also, are banks opposed to 3rd party hard money financing if I go after a bank REO?
 
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Bilgefisher

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no shortage of hard money folks... also, Sunday NYTimes has a slew of them in classifieds.



http://www.google.com/search?hl=en&q=hard+money+loans


>>>Also, are banks opposed to 3rd party hard money financing if I go after a bank REO?<<<

lol, they don't care if you robbed your own mom...

:) good to know about bank REO.

I have done a search for hard money loans through Google, unfortunately they seem to all want 4 points or more and are 15% or more. I am new to the business, but this seems very high. 150k loan costs 6k base fee. $61/day or $1850/month holding.
 

Bilgefisher

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Ok- continued on my research into hard money loans.

I am looking more along the lines of Private investors rather then institutions. The rates appear to be more favorable.

Some sources I have located them:
-Local classifieds
-craigslist
-rei clubs (haven't tried this one...no rei clubs within 30 miles.)
any other sources I should try?


Now that I have located about 10 possible lenders. When I call them, what are some questions I should be asking?
-points
-Apr
-duration

what else?
 
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phlgirl

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I ask the following:
  • Points
  • Rate
  • Do you have a max/min loan amount?
  • Do you have a max/min for hold time
  • What is required in terms of credit score/application?
  • What is your max LTV
  • How much notice do you need for funding?
 

Adam

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Please describe the "types" of projects that you are looking for funding for. I am assuming they are residential? I have rarely seen an instance where hard money truely made sense in a residential transaction.

For residential transactions, I recommend:

-Finding a residential mortgage company that has extensive knowledge of investment property financing (most say they do, but when it comes down to it, they really don't). A good mortgage banker should have plenty of local bank relationships for your construction or "weird" deals and should be able to close your typical investment property transactions very fast. My business partner owns a very well established mortgage company and we routinely close investment transactions in less than 5 business days. Our fastest close has been 36 hours from application to funding.

-Local bank. A relationship with a local bank is invaluable. Knowing the guy with "pen power" can help get your deals done very fast and utilize a common sense underwriting method, which your convential mortgage bankers can't do. We have walked out of local banks with more unsecured quick close loans that you could imagine. Having a track record and a relationship is key though.

Hard money is tough. It can cost less than bringing on a partner, but the terms are not favorable. The typical terms (for commerical hard money) are 13/3 (13% escalating rate and 3 pts upfront) with a 6m interest guarantee. I am not familiar with residential hard money terms, because like I said, it never seems to make sense.

Many will disagree with me, however, I just believe that there are much better alternatives than hard money. The cost is high, the turn time is not any faster, the allowable LTV is low, etc...
 

Bilgefisher

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Please describe the "types" of projects that you are looking for funding for. I am assuming they are residential? I have rarely seen an instance where hard money truely made sense in a residential transaction.

For residential transactions, I recommend:

-Finding a residential mortgage company that has extensive knowledge of investment property financing (most say they do, but when it comes down to it, they really don't). A good mortgage banker should have plenty of local bank relationships for your construction or "weird" deals and should be able to close your typical investment property transactions very fast. My business partner owns a very well established mortgage company and we routinely close investment transactions in less than 5 business days. Our fastest close has been 36 hours from application to funding.

-Local bank. A relationship with a local bank is invaluable. Knowing the guy with "pen power" can help get your deals done very fast and utilize a common sense underwriting method, which your convential mortgage bankers can't do. We have walked out of local banks with more unsecured quick close loans that you could imagine. Having a track record and a relationship is key though.

Hard money is tough. It can cost less than bringing on a partner, but the terms are not favorable. The typical terms (for commerical hard money) are 13/3 (13% escalating rate and 3 pts upfront) with a 6m interest guarantee. I am not familiar with residential hard money terms, because like I said, it never seems to make sense.

Many will disagree with me, however, I just believe that there are much better alternatives than hard money. The cost is high, the turn time is not any faster, the allowable LTV is low, etc...

Adam,
thank you for the reply. I am interested in your input. Right now I am looking for properties to turn over quickly. Little fixing required. My goal is to get in and out of properties in 3-4 months or less. If the property looks to be stale and not selling, my other exit is to cashflow it at around 6 months. Properties are sitting on the market in my area for an average of 4 months.

perhaps my assumption is incorrect: for short term loans, banks are reluctant to provide funding.

-My plan was to use hard money loans until it sold. If it doesn't sell right away, replace the hard money loan with a traditional loan and more favorable rates.
-Also, foreclosure auctions in my county require full payment at 1pm the same day. (Auctions are held at 10am). This leaves little time to obtain the money. Foreclosure laws are changing in my state starting Jan 1. The 60 day after sale redemption period is being moved before the sale making foreclosure sales final. With 2 months less holding costs, foreclosure properties have better returns in my state now. I want to keep this option open for this reason as well.
 
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Bilgefisher

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  • Do you have a max/min loan amount?
  • Do you have a max/min for hold time
  • What is required in terms of credit score/application?
  • What is your max LTV
  • How much notice do you need for funding?
Some good points I didn't think about, thank you.
 

santiago

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I have a good friend who is a hard money lender. He chargess based on the relationship he has with you and what he thinks of the property. I'd guess he averages 3/15. He manages $30m and keeps most of it loaned out. The convenience of using him and getting a deal done often outweighs the cost of using your own cash or going another investor route. He makes more money by churning, so most often the deal is structured for you to want to get out within 60-90 days..
 

CVentures1B12

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I am very interested in this subject, also. It is a weekly goal of mine to speak with, and add to my network, 5 Hard Money Lenders in the Nashville Area. I used Google but it just gave me the large Lenders. I want to create a relationship and build trust so that I can get great Rates and Few-No Points. Does anyone here work in Nashville or can direct me to a Hard Money Lender in the Middle TN Area?
 
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phlgirl

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One way to find local hard money lenders is to check with the Title Co.s in your area. It helps if you know someone at the title co., but these are the folks who are really in tune with who is lending money.

We have gotten some really good leads this way - often ended up being lower rates and less points too.
 

yveskleinsky

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Phlgirl-

Have you ever (or would you ever) use checks off a credit card (0 interest for 12 months) to finance a property? Why or why not?
 

phlgirl

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Yves -

It has been a while but, yes, I have used cash advances from a credit card to supplement a portion of a purchase price for a home.

I hesitate in recommending it, unless you have at least 2 exit strategies, on the property. You should have a few solid leads on how you are going to replace those funds, within a fairly short period of time. Of course you know this....but you don't want to get caught when that rate bounces back.

If you have a solid exit strategy (and a back up) then it's hard to pass up. It is so much cheaper than hard money and you have earned the credit, based on your own good name.

That said, I can see how this would be dangerous to some. Make sense?
 
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yveskleinsky

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I personally love this route, as it is cheap and easy. I totally agree with all the points you mentioned- I was just curious- as you seem to be doing a lot of things right!
 

Bilgefisher

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I'm going to bring up this old thread rather then start a new one. My original need for a Hard money lender fell through, but once again I will need one. Property flips for capital building towards a development project. I'll explain my plan if needed.

I have two potential highly recommended hard money lenders I'd like to talk to. I want to be prepared when I talk to them. What are some items I should be ready to answer and have available when talking to these folks?

Here's what I can guess, but I figure the list is to short.
-My experience
-how and where we'll be locating properties.
-cash reserves
-property acquisition guidelines
-exit strategies (I'm honestly lost at more then sell or refinance, are there others I'm missing?)


I know their main concern is getting their money out of the deal. The best way for that is to ensure my deal is solid and I'll make money. I realize I have to prove that to them. The problem is my track record is small. 1 property flip, 1 2nd lien purchase and my partner and I each purchased our own homes with 40K plus equity apiece.
 

Runum

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I'm going to bring up this old thread rather then start a new one. My original need for a Hard money lender fell through, but once again I will need one. Property flips for capital building towards a development project. I'll explain my plan if needed.

I have two potential highly recommended hard money lenders I'd like to talk to. I want to be prepared when I talk to them. What are some items I should be ready to answer and have available when talking to these folks?

Here's what I can guess, but I figure the list is to short.
-My experience
-how and where we'll be locating properties.
-cash reserves
-property acquisition guidelines
-exit strategies (I'm honestly lost at more then sell or refinance, are there others I'm missing?)


I know their main concern is getting their money out of the deal. The best way for that is to ensure my deal is solid and I'll make money. I realize I have to prove that to them. The problem is my track record is small. 1 property flip, 1 2nd lien purchase and my partner and I each purchased our own homes with 40K plus equity apiece.

Exit strategies: hold and rent, hold and owner sell on rent to own note, 1031 exchange...:cheers:
 
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White8

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I am looking more along the lines of Private investors rather then institutions. The rates appear to be more favorable.

When using private money, be very careful to have a good exit strategy and pay promptly. You are dealing with the owner of the money (rather than a bank employee who doesn't care much if you default) and they can be very vindictive.

Case in point, the attorney brother-in-law of a friend borrowed some private money and failed to meet the terms of the agreement. The lender went to the bar claiming fraud and the attorney lost his law license for a year.
 

minty99z

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I am thinking about using the Credit card Option on here as well. The way I see it, if you make enough money on the first one and do your homework, you might not have to borrow money again....Depending on the size of the loan of course.
 

hatterasguy

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Hard money sucks but its almost the only money you can get these days.

I'm borrowing $150k @10% for up to a year to do a project. I have to pay all the closing costs, and the lender would only do up to 50% value, and the property had to have no other liens against it.

So pretty much since I am only going to need it for 4 months its going to cost me $10k-$12k. Plus some PITA legal stuff as we move the funds around.

As for finding people who will lend, I just go to friends. I know enough people who can cut the checks if they want to. Getting the money is actualy pretty easy, its just that its not cheap, and its picky.

I'm trying to get my dad to lend it to me insted, because I can use he will give it to me for only 5%, plus a few bucks.

The most profitable way for you to fund flips once you get going would be with your check book. Loans eat up a nice chunk of profit, and if things go bad will eat you. If you pay cash for a house worst case is you sit on it for a bit as a rental. Its still money in the bank.
 
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