Re: Working with realtors? - Posted by Bob (Md)
Posted by Bob (Md) on February 23, 2001 at 11:26:58:
Since nobody answered the question, I’ll try. My understanding is that hard money lenders base their loan on the value of the property, but will only loan about 55-65% of the value. That means resell value in it’s current shape, which confused me initially.
If you’re not going to fix up the property, they will go 60-65% LTV based on current value (probably requires an appraisal). If you fix it up, they’ll loan up to 60-65% of the After Repaired Value (ARV). But, they’ll only release funds up to 65% of the current value. An example…let’s say the house was purchased for $20k, and you wanted to put $20k into it for repairs. The after-repair value would be $80k. The hard money lender will do a 65% loan (in this example).
They would loan a total of up to $52,000, based on the ARV. Initially, they would probably only release the $20k needed to buy the property and the rest would be escrowed. As repairs were completed, they would release funds based on their inspection that the repairs were completed to their satisfaction. This would happen in increments, until the repairs were all completed. The balance would then be released to you. Some lenders may require a 10-15% holdback for up to 90 days to ensure that the repairs were actually completed and there are no mechanics liens outstanding.
The big problem with hard money is that it’s expensive, and may come with a short-term ballooon. You might end up paying 15-16% interest, 4-5 points, and have the full balance come due in 1 year. Depends on the terms you negotiate with the lender. If you think you can handle the financing, I don’t see why you couldn’t use hard money to control a property while you were doing a L/O.
I hope this is useful information for you.