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Real Estate Rehab Hard-Money
- What it’s about"
by: Antwain Booth
I‘ve had a lot of people ask me questions about what a Rehab or Hard Money loan or financing was all about in Real Estate Investing. So in our first blog entry in the Real Estate Review, we are going to focus on an lesser-known player in the Real Estate Industry. With property values edging back down, one can be interested in jumping into the real estate investment game. I warn people, from personal experience, that there are some highs and lows associated with real estate investing and its how you mitigate those ups and downs that will determine your overall success. It is always good to have an out on any deal that you negotiate into. Most people get excited about the prospects and neglect to understand the terms or have a way out of a deal if it doesn’t work out (which can happen occasionally). As focused as you are getting into the deal, be focused on getting out and limiting your exposure.
The rehab-hard money options do have high exposure in some cases depending on how you aim to work with them. But they are great options that are avaialable in your real estate financing arsenal. They are outside of the box in some cases, but overall they allow you flexibility. Please be prepared and have a detailed plan and strategies in place. It’s been my experience that as long as you have a prepared plan, great team /system, and give yourself some flexibility for the "unexpected" you will do just fine. If you have any questions or ideas feel free to send me an email.
—Antwain Booth—
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* These loans aren’t typical mortgages. These are more like business loans. They are higher interest in nature due to the risk of the lenders for loaning money for repairs.
After the repairs you can refinance into a regular rental property mortgage or sell (flip) the property.
*Do as much research as you can to get more acquainted with the process.
Rehab / Hard Money Information - Typical offerings
PROPERTY TYPE: Residential 1 – 4 Family, investor properties, condo conversions and small apartment buildings considered on a case by case basis.
LIEN POSITION: First mortgage mostly. We have some lenders that will consider a Second Mortgage.
STANDARD TERM: 6 months with monthly extensions up to 13 months.
ADVANCE RATE: 85% to 100% financing of the total project cost, plus interest, points and closing costs can be financed to reduce funds required at closing. Our partners will loan up to 75% of the After-Repaired-Value.
RENOVATION FUNDS: Renovation funds are usually advanced in one to four draws, and wired directly to your account. Rehab portion of the loan typically not to exceed 150% of acquisition cost unless otherwise approved.
INTEREST: Some programs have no payments for up to three to six months. Some programs you make payments. It just depends on how it works out for you. All of the loans depend on the equity in the property. Borrower may finance interest in loan proceeds at closing. Typical Interest rates vary from % 9.9 to 18%. These aren’t mortgages. Rates are higher due to the increased risk.
POINTS: Points can be rolled into loan balance at closing and may be partially rebated upon early payoff. Points may vary if borrower qualifies for one of our "Line of Credit" programs.
CLOSING COSTS : Expect up to $3500 of closing costs (i.e. title insurance, recording fees, etc.) as part of the loan proceeds. A portion of those closing costs can be financed.
GUARANTEE: Personal guarantee required on all programs. QUALIFYING DOCUMENTS THAT MAY BE NEEDED: Rehab Loan Application including:
LOAN DOCUMENTATION:
(For Each Loan) Purchase Agreement
Summary of Rehab Work to be completed
Builders Risk Insurance (will not closed deal without insurance)
After-Repair-Value Appraisal (Obtained by Lender)
Title Policy (Obtained by Lender)
QUICK FUNDING: Once a borrower has been approved, funding of individual transactions is typically within two weeks. We have partners that can close in sooner time if all documents are received in a timely manner. There is usually no need to reapply for subsequent transactions.
Two Typical Scenarios and an Example for Rehab / Hard Money Loans
- 1. Find and purchase the property, Fix the property, and Sell the property
- 2. Find and purchase the property, Fix the property and then refinance the property into a regular rental property mortgage.
Example
Ex. ( Let’s say you purchase a property for $90,000 that needs $20,000 in repairs but is going to be worth $200,000 after repairs. The Lender loans you or your company the money to fix the property up @ 15% interest. That is approximately (assuming none of the closing costs and points got financed into the loan) $1375 for payments (excluding taxes) .
If it takes you 4 months to fix and flip (sell) or refinance the rehab / hard money loan. You would have paid $5500 in payments for the property during the renovation stage. $90,000 + $20,000 + 5500 = $116,500 – $200,000 Sale Price (or appraised value) = $83,500 in Equity (profit) to work with. Most likely your payments will include a little more than the calculation here, but this scenario gives you an idea of how a Rehab / Money Hard Loan can work for you.
Please factor in to your costs and decisions, holding costs for the property. (i.e loan payments, electricity, etc.)
TYPICAL QUESTIONS ABOUT HARD MONEY / REHAB LOANS
From Cash for Debt . Net
1. What is the process for Hard Money Loan
Hard Money Loans provide Investors access to capital to purchase investment properties. They can fund quickly, typically within 72 hours of receiving the final docs from the Title Company. Hard Money is available for adequately collateralized loans on single-family residential houses and other Real Property including commercial projects.
2. What is the interest rate?
The interest rate depends upon the Lender. The rate will range from 10% interest only to 18% interest only annual interest rate payable monthly in most cases. Some Lenders will defer interest payments to payoff, benefiting investors that do not want payments during rehab.
3. What Loan-to-Value are Hard Money Lenders looking for?
Typically a loan does not exceed 75% of the after-repaired-value (ARV). This figure is calculated by an appraiser and consideration of repairs.
4. How long is the loan for?
Typically write the notes from 3 months to 12 months depending on the Lender and your needs. Longer the term can lead to increased costs or interest rate.
5. What are the costs?
All loans will require Title Policy, Insurance, and Appraisal. These services come with fees that can range from a few hundred to a couple of thousand dollars. Most require origination points ranging from 2 to 10 points.
6. Can I get money pay for repairs?
Yes. Most Lenders require a “Draw Request” form to be filled out to identify the completed repairs to the property, copies of the invoices from the contractors or sub contractors. After work is inspected, draws can be dispersed. Typically work is not paid in advanced.
7. Does my credit matter?
Maybe. Hard Money Lender do check credit, not necessary for credit scores, but to check for bankruptcies, foreclosures, charge offs and collections. They look for ability to repay. The loan is more collateral based, which means they look really closely at the property.
8. Do I need to put any money down?
In most cases, Yes. Most lenders want to ensure that you have enough resources to finish the repairs and cover the costs of the loan plus any surprises. Expect to pay all origination/discount points and other costs at or before closing. If you cannot afford to close you typically cannot afford to take out this type of loan.
9. Can interest to be deferred to the end of the loan?
Sometimes. Most have interest payable monthly. Again, if you cannot afford to close you typically cannot afford to take out this type of loan.
10. How does Hard Money compare to a traditional non-owner occupied investor loan?
This would be like comparing apples to oranges. Hard Money has a very specific purpose. Typically these loans are for quick turn around or after repair situations. Conventional financing is used for your traditional rentals and long term hold scenarios. As the foreclosure market increase you will find investors to use Hard Money as way to secure the property in a short period of time then refinance into Conventional finance.
I hope this posting provides you with some insight into what options area availble to you for your real estate investing needs.
About - Antwain Booth
Antwain Booth is the CEO of Booth & Witherspoon Investments. He is an entrepreneur, social media expert, promoter, and an experienced real estate professional.
BWI Realty Marketing (www.bwirealty.com) is the Real Estate Marketing and Advertising subsidiary of Booth & Witherspoon Investments (www.bwinvests.com). Booth & Witherspoon Investments was founded in 2004 by Antwain Booth and the late Jay Witherspoon. It is based in Raleigh-Durham, NC. BWI Productions (events, marketing, entertainment, promotions) has representatives throughout cities in NC and in SW. VA with immediate plans for increased expansion throughout the Southeastern US.
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Contact Info:
BWI
C/o: – Antwain Booth
P.O Box 11178
Durham, NC 27703
ph.919-824-4651 email: Abooth@bwinvests.com
BWIrealty.com BWIrealty.com/rehabhardmoney
BWIproductions.Com BWinvests.com
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