Where my flippers at (the value of a Hard Money Loan)?
Traditionally, if I’m working to put somebody in a hard money loan it’s probably because it’s going to be for a short duration of time, it’s not going to be a place they live in, and it’s going to be a deal or a project that values speed more than cost and rate. Why’s that? Here, let me try to explain:
What is a hard money loan?
It’s a loan that’s going to have some costs up front (three to five points in closing costs) that typically don’t exist in a more traditional loan setting, as well as a significant interest rate (probably double digits), for a property that might or might not meet conventional habitation standards at the time that the property is purchased.
So- I’m paying money up front, and I’m paying big interest, why do I want this loan again?
You want this loan if you are fixing and rehabbing and getting done with a project in a hurry, and you want to move fast, fast, fast while you fix the place up and then get into a more traditional loan or sell the property when it is done. On a hard money loan, you get to borrow something like 75% of after repair value on the home. So, imagine a house in a decent neighborhood where every house is worth about $100 a square foot (I like easy math so yeah, I’m using easy math) and the typical house is 2000 square feet. But you, you dear buyer, have your eye on that house with a tarp over the roof, foundation that’s cracked, lovely shag carpeting like your grandma used to rake when you were a kid, that stinks of cigarette smoke and might or might not have seen someone die in a tragic murder/suicide. Where others see a problem you see…. opportunity. So, pretend you are able to buy this house for $100,000 (I told you, I like easy math), we are going to get you 100% of that purchase price. And, we are going to give you another $50,000.00 to fix it up. So, you get to use the first $150,000.00 of hard money on the deal, without a lot of questions asked, and all at the low low low interest rate of 12% (or something like that- no figures are exact this is just illustrative) while fixing up the property. If you can get the project done on time, on budget, flipped and sold in time you can make good money. Maybe have your own TV show someday. Definitely rolling around with your own crew. Living the life. That’s the dream anyway.
Sweet- that totally makes sense- unique situations require unique forms of financing, right?
Totally right. And if you want someone to help you with your unique financing (and this isn’t the only example of where hard money might work- just the most obvious), or your Plain Jane ordinary vanilla financing, I’d love to talk to you about your hopes, dreams and projects. Give me a call at 832-557-1095 or email me at email@example.com, I’d love to help.