Hard money for little rehab deals - Posted by Kristine-CA

Posted by Ronald * Starr(in No CA) on July 12, 2002 at 13:40:37:


Thanks for the further details. Yes, people charge a lot for foundation work. I and a partner once put in a partial foundation under a house, with the guidance of a contractor/termite man. The work was not too bad. At least I got to lie down on the job–under the houses.

If you can find people to do the foundation work cheaper, you may have found yourself one of those little niches that lead to riches. I would guess that you can find people who will work cheaper than the bids you are getting. But the issue is always are they good workers or not. You might run an advertisement in the local paper(s) “Construction. fix foundation for house. Kristine…” Then, when the people call, get their name, number, and references of where they have worked before. Call the references. I’ll bet you can get those foundations done for less that $5K.

Good InvestingRon Starr*

Hard money for little rehab deals - Posted by Kristine-CA

Posted by Kristine-CA on July 11, 2002 at 18:59:49:

Greetings all. I’m wondering if anyone has had experience with hard money loans for small rehab projects. I have a property under contract that I am thinking of keeping and rehabbing. Purchase price is 19K and a 20-25K rehab would make it FHA financeable and easily marketable at 60-65K. Is that enough room for a hand-money lender? I’ve never worked with one and I suspect that these kinds of numbers might be too low.

Is there a typical rate with hard money? Are the lenders/investors looking for interest? points? a share of the profit after rehab? This is a foreign country to me, this loan business, but I am running across some properties that I think I would profit better from rehab. And I want to learn the rehabbing end of this business anyway.

Are funds typically available upfront for rehab? Or are they distributed at intervals throughout the project?

Any experience or caveats would be appreciated. Sincerely, Kristine

Re: Hard money for little rehab deals - Posted by Jim Kennedy - Houston, TX

Posted by Jim Kennedy - Houston, TX on July 12, 2002 at 08:05:42:


You’ve gotten some very good advice from both Brian and Ron.

One of your questions that wasn’t answered was the issue of funding the actual repairs. Hard money lenders will treat this in a couple of different ways. First, understand that some hard money lenders will not fund the repairs at all. They only fund the acquisition of the property and you’d be responsible for funding the repairs out of pocket (or with funds from a cash partner).

On the other hand, most hard money lenders WILL fund the repairs. I know of none that will advance the repair funds. Repair funds are usually released in predetermined “draws”. The size of the entire project will determine the number of draws and the amount of each one. The funds are only released after each stage of the work is completed. Some will disburse funds based on invoices only. Others will disburse funds based on the amount of the work completed. The latter is preferred. That way, if you can get the work done less expensively, you can get ahead of the game. As an example, let’s say you arrange a $3000 draw for replacing the roof. If you can get the job done for $2500, you can use the extra $500 as working capital.

There’s a saying that rehabs always take longer and cost more than expected. When I analyze a deal, I use the most conservative numbers. If the range of numbers in your example is correct, I’d be analyzing using the $25K number for repairs and the $60K number for ARV. That being said, as Brian pointed out, this would be a hard deal to fund with hard money.

But don’t worry - there are plenty of rehab deals out there. Keep looking and you’ll find one where the numbers fit.

Best of Success!!

Jim Kennedy,
Houston, TX

P.S. Here’s a suggestion for finding an affordable foundation repair contractor. Call every rehabber you can locate (local rei club?) and ask them who they use. That’s how I found my guy when I first started doing rehabs. He is SIGNIFICANTLY less expensive than anyone that I had found on my own.

Re: Hard money for little rehab deals - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on July 11, 2002 at 21:47:55:


While doing rehabs is lucrative, I’d advise away from doing so with this property.

When you say it will take $20K to $25K to do the work, I am hearing a big number. If it were a “cleaner upper,” you might spend $3K to $5K tops. So this is a really big project, it sounds like to me.

I’d suggest that you get some more experience and more money reserves before you take on a project of this size.

Good Investing**************Ron Starr*************

Re: Hard money for little rehab deals - Posted by Brian-N-Pa

Posted by Brian-N-Pa on July 11, 2002 at 19:36:44:

Hard Money Lenders Loan based on the After Repaired Value of a home. Usually they loan between 55-65% of the value. Your Example is close but would be a tough Loan to get as it totals about 70-72% of the value if it really cost 25k to repair. Basis for Hard Money loans usually range from 14-18% ( sometimes a little less ) and upto 10 points depending where you get the money. Usual loan periods are for 12 months. You pay interest monthly then a balloon at the end of the 12 months or apon sell of the property. They will hold a 1st mortgage for the money. Hope this helps you.

Re: Hard money for little rehab deals - Posted by Kristine-CA

Posted by Kristine-CA on July 12, 2002 at 11:21:26:

Jim: thanks for your ideas. 25K was my worst case estimate on this project for repairs. But I didn’t take into consideration selling costs. To get someone the kind of loan the buyers will probably need, I’ll have to use an agent or mortgage brokers, so there are additional costs.

But I agree, there will be the right rehab out there with better numbers for someone who limited experience like myself. But now I’ve got to flip this one so I can move on to others.

Sincerely, Kristine

Re: Hard money for little rehab deals - Posted by Kristine-CA

Posted by Kristine-CA on July 12, 2002 at 07:30:48:

Ronald Starr: thank you for your reply. You are right, you are hearing a big number. Most of the properties I have under contract need foundations to make them eligible for financing. But that’s pretty much main big expense. I wish there were some “cleaner-uppers.” Those seem to sell very quickly at close to FMV to retail buyers because of the prices here.

I also wish I could solve the foundation issue cheaply. I have bids on three homes and all the licensed concrete contractors I can find want at least 7-10K for piers and perimeters for little houses. Some of the houses are so low to the ground that the work would have to be done through the floor inside the house. Some of these houses are nearly perfect in every other way. Owners have invested money in new windows, siding and roofs over the years, but as owner/occupants never needed to add the foundation. If I can figure out how to do this decently and cheaply and make these homes FHA eligible, there is a large supply of good homes for this investment strategy.

Thanks for your thoughts. Sincerely, Kristine