Paying the Hard Money Lender... - Posted by Train

Posted by Jim Kennedy - Houston, TX on January 28, 2002 at 20:49:33:


CRC Coast Realty Capital, Inc.
Bob Hemrich
10900 Northwest Freeway
Suite 205
Houston, TX 77092

He will loan based on the ARV so that if you get the property cheap enough, you can actually fund the repairs with money from the loan. Repair funds are disbursed in draws based on work completed NOT invoice reimbursement.

Best of Success!!

Jim Kennedy,
Houston, TX

Paying the Hard Money Lender… - Posted by Train

Posted by Train on January 28, 2002 at 01:41:10:


Alright, let’s say that i find a great deal at 30K from my RE Agent and that my Rehab guy makes me a nice evaluation at 20K to bring her back at FMV of say…100K for example.

I buy the house for 30K and after spending 20K in rehabs the house is ready to be sold BUT 6 month later my RE Agent still can’t sell it and my Hard Money Lender is knocking on my door now for his check!!

Now what do i do here?

I heard about taking money out of the house by going to a bank and make a new appraisal since the house had taken some value in the rehab process and refinance it to have a loan on it that could pay the lender.

Besides that, anyone had this problem before?

Tell me what to do here in such a case?


Re: Paying the Hard Money Lender… - Posted by Jim Kennedy - Houston, TX

Posted by Jim Kennedy - Houston, TX on January 28, 2002 at 08:55:08:


Here are a few suggestions.

Based on the numbers in your example, you’ve got a very healthy potential profit.

$30K purchase price + $20K in repairs = $50K spread.

Now deduct a figure for soft costs, i.e. acquisition costs, holding costs, and disposition costs. Figure $12K since you’ll have to include the agent’s commission.

$50K spread - $12K in soft costs = $38K potential profit.

There’s an old saying that goes something like: “Price cures all ills related to real estate.” Since you’ve got plenty of room in this particular deal, consider dropping the asking price for a quick sale. Would you be happy with a $28K profit? I would. How about $25K or even $20K? Those sound like reasonable profit margins to me. Brings to mind another saying. “Pigs get fed, but hogs get slaughtered.”

Not every rehab is going to have such a generous profit potential as your example. In fact, I average about 20% on most of my rehabs. Therefore, dropping the ask price is not always going to be the most attractive option. So here are a few more suggestions.

Your question seems to concern a hypothetical scenario as opposed to an actual existing deal. If that’s the case, find a hard money lender that will go longer than six months. In my area, there are several that go twelve months. While six months should be enough time, why put yourself in a potential bind? The rehab phase could go longer than expected. And the marketing phase is even more unpredictable. Give yourself the extra time to be on the safe side.

If your question concerns an actual existing deal, there are a couple of ways to solve the problem. As you mentioned, a bank refi is one solution. In the construction business, this is referred to as “take out” financing. Another solution is to bring in a money partner to pay off the hard money lender. This could be costly since the money partner will generally want a pretty hefty piece of the pie. But it’s better to give up a portion of the profit than to lose the whole deal.

Here’s a suggestion that’s pure speculation on my part. I have no idea if it would work, but it’s certainly worth a try. Renegotiate with the hard money lender. Offer additional incentive, i.e. another point or two, a higher interest rate, or a combination, in return for an extension.

My last suggestion concerns the agent. From your post, I take it that the six months you mentioned was from the date that the loan was funded until the due date. If that’s the case, I’m going to assume that the house has been on the market for 4½ to 5 months. A $20K rehab shouldn’t take but about 4 to 6 weeks at the most, weather permitting. Depending on local market conditions, I’d be real concerned with an agent that couldn’t get the home sold any faster than that. Consider firing the agent. This won’t help solve the immediate problem of the impending due date, but at least you won’t be paying six or seven percent to someone who hasn’t performed satisfactorily.

Hope this has been of some help.

Best of Success!!

Jim Kennedy,
Houston, TX

Re: Paying the Hard Money Lender… - Posted by cal

Posted by cal on January 28, 2002 at 13:50:59:

When you talk about a hard money lender going 6 months or 1 year, are saying you don’t have to pay back the hard money lender anything until that 6 months or 1 year is up, no interest, no payments, no down payment, etc.? We are just getting started in the rehab area and will be contacting lenders and don’t really know how they work deals where rehabbing is involved.

Re: Paying the Hard Money Lender… - Posted by Todd H.

Posted by Todd H. on January 28, 2002 at 12:44:26:


When you say that in your territory you have several hard money lenders that will go one year, what do you mean? Are they deferring any payment to them for one year and the points and interest is paid at time of closing when you resell the rehab?
How are you working with the hard money lender? Points one should expect to pay? Interest rate expected to pay? Would you be concerned over a hard money lender who wants to see your credit scores yet still charges you 5-10% in points?

Re: Paying the Hard Money Lender… - Posted by Jim Kennedy - Houston, TX

Posted by Jim Kennedy - Houston, TX on January 28, 2002 at 18:42:59:


Five points which are rolled into the loan. The terms include monthly interest only payments at 1.5% per month (18%).

I could be wrong, but I think there’s a trend that many hard money lenders are following. It seems that more and more hard money lenders are looking at the borrower’s credit rather than relying exclusively on the asset as the determining factor in their decision to grant the loan. There are still enough true “asset based” lenders out there but you have to search for them. My conception of a true hard money lender is one that doesn’t care about the borrower’s credit. Their LTV is low enough that they feel comfortable making the loan regardless of the borrower’s credit score. I’ve had one hard money lender tell me that he runs the borrower’s credit but disregards the FICO score. He’s only pulling the credit to make sure he’s not dealing with a total flake. He’s only looking to make sure the borrower doesn’t have a bunch of foreclosures in his past.

Best of Success!!

Jim Kennedy,
Houston, TX

Re: Paying the Hard Money Lender… - Posted by Todd H.

Posted by Todd H. on January 28, 2002 at 19:55:34:


Having a hard money lender look at my credit is not a problem, actually I would encourage them to because I have good credit, and excellent income, equity in my home and I do not owe anyone except for my mortgage.
As to my question about points, that number that you gace me is okay but I have heard about some lenders that want points upfront nad will not allow you to roll those into the loan. The kind of example you described above is a great one and seems to be one that would allow you the investor to retain more of your capital for rehab usage and I would like to find a partner with rates and terms like those you have described.

If you do not mind me asking, who is your hard money lender and what area does he cover.


Todd H.