In Depth Look at Hard Money Loans
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- Опубликовано: 20 окт 2024
- www.freedommen... An in-depth look at hard money loans from the leading real estate investing mentor and investor, Phil Pustejovsky, who began his career obtaining hard money loans and now is a hard money lender for his mentees. In this video, you'll discover the most important things you need to know about hard money when investing in real estate as well as the myths that far too many investors believe. By the end, you will have gone further down the rabbit hole of hard money than you'll find anywhere else.
I'm a hard money lender. One thing Phil did not clarify, is that hard money loans are INTEREST ONLY loans. So if someone borrows $100,000 from me for 3 years at 12%, they are paying me $1,000 per month for 3 years and at the end of 3 years they still owe me the original loan of $100,000.
can you clarify further if possible? thanks
@@lucasduncan195 If you are talking about flipping houses. You are basically paying interest and points. So for example, let's say that you borrowed $200,000 at 1.25% /month and 5 points. From the time you bought the house until you sold it you had the house for 4 months. You would be paying ($200,000 @ 5%(1.25*4)=$10,000 and 5 points (which is basically 5%, so the math is calculated the same (200,000*.005)=10,000.
Hope this helps.
@@Jiggz9 Thanks Jigar
Thank you phil. I have been investing in homes since 1992. Like you, I am an engineer, but I am 60 years old and I'm ready for mailbox money and world travel. Everything you said was exactly right about hard money loans. I killed it in the stock market this year, so I am looking for ways to tuck my money away so that I can move to Ecuador and go scuba diving until I get tired of it someday.
Terrific videos, my friend!
I've done two hard money deals. It's nice when all the T's are crossed and I's are dotted. My favorite aspect is the ability to close in less than two weeks. Selling have taken less because if this which made my deals even sweeter.
Hi Jeff, question - did you have to put money down or use any of your own money? I'm finding it hard finding a company that offers 100% coverage in las vegas . Thank you!
@@nathalierecinos4845 it is possible to find 100% financing, but you also have to prove to the hard lender that you have money in reserve to do emergency repairs, and other expenses that come up.
@@jeffk5724 thank you for your response. May I ask what company you use? Or do you recommend of any?
That was a major buzz kill, but thanks for the honesty
Thanks Phil, I can use this video to help explain the concept to my brokering clientele.
Thank you Phil. I'm just starting out and enjoy listening to your youtube videos.
Got both of your books Phil. Really appreciate what you do.
Phil as usual you are very helpful and insightful. I truly appreciate this video
Thanks for your great videos Phil! Could create a video explaining how to ideally refinance from an HML to a conventional loan? I understand a 30yr fixed is ideal but if you could explain the best way to transition from HML to conventional!
Thanks!
Watch this video: ruclips.net/video/SyZuh9eh0JI/видео.html
Thank you, once again! which two websites did you mention one should use to select good contractors ?
Watch this video: ruclips.net/video/xrlP-LD8NC8/видео.html
It all depends on who the Hard Money Lender is". My deal was they will lend 100% of the flip and my loan per flip was $250,000 which includes purchase price, rehab, closing costs, and financing costs. All of it had to fit into that 250K. If I go over I can put my own money into the deal or apply for a Gap loan. However, they wanted to see a 25%-30% return.
The 2008 Meltdown collapsed many HML with flexible lending rules. There are still a few HML that lend based up to 70% ARV, lend to newbies (they provide tight oversight on the project), and they will roll-in financing costs with the loan. However, a better lower-cost source is a private financier perhaps using a Self-Directed Individual Retirement Account (SDIRA). Commercial HML can be another can of worms, and a few of them will provide cash out to the borrower at closing and allow junior financing, even for rental financing. It all comes down to finding the right property with the right motivated seller and the right financing structure.
hey im actually trying to get into a commercial property and remodel thats why i am looking at HMLs. however i find most information regarding is geared toward flippers . what advice do you have. it is a restaurant property in a gentrifying community with currently millions invested around it. the property is horribly outdated but with all its permits in tact. the property is not up for sale but instead for lease for many years now and i want it. any advice?
I am not a lawyer, nor do I play one on TV. Legal information is NOT legal advice. Always retain the services of a licensed professional who is an expert in your specific topic of inquiry.
I remember a mentor saying "If something is vital to my business, then I want to own it." Owning gives you the most control. Leasing gives you possession and limited contractual control. The upside to leasing is that you get in for very little, if any, upfront money. Most of your upfront expense is in tenant improvements (TI).
I probably would not lease a commercial property unless I could also get an option to buy it at a fixed price for a specific time frame, with right to extend by paying additional option consideration. Also include the right to sublet or assign without further approval of the owner.
View the lease payments as an interest-only loan, and the additional option consideration payments (applied towards the purchase price at time of exercise) as principal-only payments. Combine the two payments to calculate your "debt service". Your actual rental income minus your gross operating expense is your Net Operating Income (NOI). Subtract debt service from NOI to calculate your Net Cash Flow (NCF) before tax.
If your lease is triple net or absolute triple net, then include a clause to apply your capital expenditures (e.g., new roof, paving the parking lot, etc.) as additional option consideration (principal) to reduce your Balance Due at Exercise. Record a Memorandum of Option and Memorandum of Lease Agreement to provide constructive notice and seasoning of your equitable interest in the property.
After seasoning your option for a year or two, you would be eligible for a refinance loan to exercise your option to buy the property. So, you get control with very little down payment, net positive cash flow, accelerated principal pay-down due to the option contract (increases your equity much faster than the depreciation tax shelter available only to the owner), and your refinance lender is protected by the created equity when you exercise your option. You can also assign (sell) your lease and option contracts jointly or separately.
By the way, keep emotion out of your decision process. The numbers must work with a conservative margin for error to tolerate recessionary pressure on income and expense.
Two cents worth. Your mileage may vary.
thanks so much for your advice. yes, i would love to own this place. and yes im going into as a tenant hoping to buy in the near future, however despite that the location as a restauranteer is worth its weight in gold so i see it as a win win. however i figured that i would have better chance coming in as a tenant than to purchase because the purchase amount would be insane and i might just loose it all together if i dont have enough capital for the entire property. worse case scenario i can enter as a tenant then petition for part ownership if not full in near future! thanks for the rundown! im saving it to my advice folder! ;D
As UltimateBargains said: Don't get emotionally attached to the deal. The number MUST make sense.
Thanks. Yes. I've moved on. They were unenthusiastic about leasing and from the vibe. Just waiting for the surrounding developers to buy them out. Is what i was feeling. Pleanty of fish in the sea! Thanks guys!
Damn, I wish this guy was my friend😭😭😭
I don't know if this is for a different area where HMLs follow different protocol, or if times have changed since this vid, but my recent experience is that they get an ARV (either brokers opinion of value or actual appraisal) and loan x% based off the ARV. My HML ordered an actual 3rd party appraisal using a contractor's work scope to calculate their ARV, which they used to base the loan amount, covering purchase price plus most of the rehab and fees.
Hi I'm new to your channel. Do you have a video that describes all the loans possible for purchasing a home? With credit or without.
Well that was depressing
Just a bit lol
omg, depressing as hell.
I once defaulted on a hard money loan and now I have to eat through a straw, and I have no kneecaps
@@XxowendanxX I defaulted on a hard money loan, I lost my whole down payment money, the property, they're now the landlord collecting all that rent, and I'm now on a highway ramp with a 'WILL WORK FOR FOOD' cardboard sign! :-(
@@MrZluvu4ever I stood on a street corner and held up a sign I wrote, "WILL WORK FOR MONEY"
I have the opportunity to buy a duplex and I want to fix it up and rent it out. I'm just not sure what's the best financial option. Help please
Watch this video: ruclips.net/video/jwXNmu8tZUM/видео.html
Dont you have to hold on to the property for a certain amount of time with FHA 203k loan?
is it true hard money lenders in general will not be second on the mortgage? I have a couple pending pre foreclosures that I am making up the back payments and they are deeding me the property. I didn't apply for any hard money loans since I'm fortunate to have had a private investor available to me but I was told by a local hard money lender that it'd 'NEVER HAPPEN' that I would be able to borrow the money to bring the mortgage current in exchange for the equity in the house to then retail it.
Congrats on finding a local private funding source. Hard money would not allow such flexibility. DON'T lose any of their money though! Treat that relationship like a prized possession because it is. It could be a great asset to you for many years to come.
do you mean ARV and not as is? never heard of that method before.
Hard money lenders base their LTV on as-is value, not after repaired value.
So quick question let's take 100k loan over 12 months at 4 points and 10% interest. Is that 10 percent charge monthly meaning 10k payments a month? or do I take all 12 months and divide the 10percent interest into that meaning $833.33 a month for 12 months.
10% per year, or 10% / 12 mths = 0.8333% interest rate
So if they want us to have a track record how do new investors get a hard money loan? Reminds me of how managers nowadays want you to have years of experience for entry level but don’t wanna give you the experience.
Isn’t the origination fee bundled in and tacked on to the end of the loan? Also I thought most hard lenders lended based on ARV not the AS IS value?
No, origination fees are almost always paid at the loan origination closing. And most hard money lenders base their loans on the As-Is appraisal, not the after repaired value
Phil Pustejovsky ugh!!! Thanks for the info.
How much would a typical pay back of a hard money loan be? For example a $60,000 loan at 14% for 1 year. What would the monthly payment be?
Go to Google and search "mortgage calculator" and then input $60,000 as the loan amount, 14% as the interest rate and then set it on a 15 year amortization as well as a 30 year amortization. Some do 15, some do 30. While others (like myself), do interest only, which is $60,000 * 14% = $8,400 / 12 = $700 per month
Amazing video. Thank you Sir.
Thanks you just convinced me to sell rather than do hard money
Excellent explanation of hard money!
Can't you work out a deal with the Hard money lender to escrow the additional borrowing for renovation? Like using a Title company?
They won't go for it. You can try though. Good luck!
I gotta build up some cash then if I want to start. I spoke with lenders, attorneys, and home owners all morning. Home owner wanted 125k in opa locka with section 8 tenants. Saw the home on Zillow it's a 3/1. He told me cash flow is 1300 each month taxes and insurance are 314/month. He said profit is around 300. So I assume mortgage is estimated 700 or more. I told him my resource would be a hard money lender. I mentioned to him that when I give you 125k for the home, I expect you the seller to agree on contract to cover all closing cost fees. I plain up said if I'm going to give you 125k, I want you to pay every single contract at closing time. He agreed to and said ok as long as you provide 10,000 EMD.. (I don't know what that means) he asked me how soon can you close, I told him I have to see the house first and respectfully meet the tenants personally before I can make any decision and he said ah I rather do a drive by I don't want to disturb tenants. So I had no further conversation with the guy. I didn't like how high the home was either, it seemed like a trailer but it was a standard concrete home he told me. I had fun talking with him, but to bad. I found another deal with no tenants, just plain out home for sale, needed minor work from the look of the pictures. Very simple it looked like. The lawn and backyard I can clean up in hours. House painted, another day just a few hours. Interior, I can devoted my time to it room by room painting and mopping and cleaning. But damn it's going to be a few years until I can actually start my first investment. The only bill I pay is my phone and gas and ect. I don't need any other expense except the expense I'm willing to pay for a home to fix and place a tenant in. But now I'm saving and reading. The more I read, the more I understand the language this stuff.
Great insight! Thanks!
Hey phili can you get a hard money loan on a "subject to"
I have a rental property/commercial property. I’m looking at a hard money loan for 9.68% for $250,000 for 8 years. They said, after 8 years it’ll be adjustable. Payment $2,600 but supposedly I’m paying interest & principal. Property is paid off. I want to go pay off personal debit, buy my own home & invest into the property. Can someone help? I’m not sure what to do....
Syberloans is a financial company in Baltimore, Maryland, USA. Syberloans help connect hard money seekers in their area to hard money lenders who are looking for hard money loans for construction, rehab, real estate, short-term bridge loans. Please visit us for more info - syberloans.com/
What's your view on people getting a home that they want to keep financed by a hard money lender until they get their credit up to refinance. I don't sometimes there's Cash out refinance options with hard money lenders to
Don't. Instead, structure creative financing with the seller. The interest would be much lower.
does the lender use the house u want to invest in as collateral , or do u have to have another house for collateral?
The house you are buying. But if they are smart, they will also collateralize it across your other properties too.
Very informative!!
Great information Phill. Do you have to have an LLC to get a hard money loan?
Most hard money lenders do not make that a requirement. As a hard money lender myself, I do. That's because I don't want personal judgments and other issues to impact the sale of the property. But I'm sure many hard money lenders will do it in your personal name. But you would prefer spending the extra couple hundred dollars and always buy real estate in an LLC. Watch this video: ruclips.net/video/VAv_jZWUL3I/видео.html
Always very informative thanks fir all your help and info
so if I wanna be an investor I'd have to borrow money to buy the property and borrow money to renovate the house?, so to pay that back and make a profit I'd have to find a cheap house and make sure the house fully renovated can get a high price.
Not necessarily. If you want to use hard money to buy a rehab, then your summation is correct. But hard money is not the only way to invest in real estate by any stretch. This video explains: ruclips.net/video/E1GfiEZDf7A/видео.html
yeah
Severe risk by collecting interest and/or points "at the end". If the loan goes sideways during the term, you have nothing collected and are even deeper in the hole on the foreclosure. Why in the world would you layer your risk that way?
Because it helps my Apprentices. I don't do it for just anyone.
Spot on information Phil!!!
Thanks for the enlightenment.
Brother,
Do you invest here in San Antonio, TX?
I have done plenty of deals there in the past
Hey Phil, I have a bit of trust issues with hard money lenders. Say I find a deal and give the hard money lender the address and some numbers, what's preventing them from just taking my deal and making a lot more money off it?
Thanks for all your vids btw
Get the deal under contract first and then the hard money lender can't steal the deal from you.
Phil Pustejovsky How can I be under contract if I don't have the money yet? Subject-to financing? Should I lose my deposit if it falls through? I'm in the Bay Area and I'm competing against cash buyers. Thanks again!
Focus on off market deals that don't involve bidding wars and you can get deals under contract with $10 earnest money. And spare me the line, "that doesn't work in the Bay Area, Phil", because my Apprentices are doing it right now in that area, including on the San Fran Peninsula.
Phil Pustejovsky thank you. Appreciate it.
Do you have a list of hard money lenders in California?
Yes. www.freedommentor.com/hard-money-locator
Yup... Scared me away for sure. After that explanation, why would anyone EVER use hard money?! A conventional loan is so much cheaper and actually easier to get. Not to mention they both run your credit and expect payments right away. I now know hard money is not the way to go!
Hard money lenders can close in 2 weeks, sometimes in a matter of days if you have a good relationship with them. That quick close can put you above other offers on the property. Then you can just immediately refinance out or refinance after you fix it up and do cash out
Is a hard money loan a good option for a person who want to rent out to people?
No. Watch this video for a better loan for those kinds of deals: ruclips.net/video/jwXNmu8tZUM/видео.html Hard money is for short term deals.
Got a property worth $125K ARV on contract for $76K 😎😎😎
8k rehab. My cousin and I are renting it out now. We gonna hold it for like a year or so and then sell it. I found that house while driving for dollars
I watched a lot of vids from a lot of youtubers. I also listened to podcasts and read a few short books. My cousin was familiar with real estate investing so thats why I partnered with him.
But without a doubt the hardest thing is just getting started.
Once you get the first one though it will motivate you
Could you share some book titles, thinking about getting into this game!?
I have a video on that topic: ruclips.net/video/RkXkNGpqDy8/видео.html
How do i get a business loan for dump trucks? Family business is construction/demo & its getting established fast!!
Lion Man research business credit
How do I become an apprentice?
Apply here: www.freedommentor.com/apprentice
hey whats up phill if you needed a contract to lend money to investors were can you have one made having hard time finding a lawyer to do it
I get them from the Fannie Mae website: www.fanniemae.com/singlefamily/security-instruments# That's where all the lender get their documents and they are free.
thank you
how do you lend money to people? what do i need to know and have to be a hard money lender? is it worth it being a money lender in todays day?
Have an enormous amount of real estate investing experience. Enormous amount.
Great information, but I am a little confused with the "as is" value part. At the time when the borrower goes to the HML, let's say the property is worth $100,000 and let's say the "after repair value" is $120,000. If the HML lends only 70%, then is this 70% of $100,000 or $120,000? Thanks.
70% of $100,000...70% of the As-Is value, NOT the after repaired value
how do I become a apprentice??
Apply here: www.freedommentor.com/apprentice
how to become an apprentice phil?
Go here: www.freedommentor.com/apprentice
Does age play a role at all in your ability to acquire capital from a hard money lender?
Not that I am aware of
Phil is the man
How do you become a hard money lender? 10-15% ROI sounds good.
Have hundreds of thousands in cash, if not a few million and then market yourself as a hard money lender...and you should really, really, really know the real estate investing business. Otherwise, you'll won't be getting wonderful returns; you'll be dealing with awful lawsuits and foreclosure proceedings.
Phil if you're ever in the Tampa St Pete Clearwater area please let me know. I have 835 credit score, married for 8.5 yrs and a passive real Estate investor :)
MRBADASS hey how's things going for you now in REI? I'm in tarpon springs and invest too.
Thanks for the video, Phil.
When you have made hard money loans, did you have to apply for any types of lending licenses in various states and do you recommend lending via an entity or personally?
Thank you!
Entity.
And every state that we lend in has a max number before licensing is required, which is usually 5 loans per year. Since I lend from different entities, I continue to fall within those parameters.
Phil Pustejovsky thank you very much, that helps out a ton. Do you have a preferred state for those entities?
Wyoming
Phil Pustejovsky thank you very much!
I'm going to get the book
2 words about Hard money loan
Don't do it!
So what's next ??
3?😂😂😂
That bad? Why??
What happend ?
newbies + noobs + idiots never know the secret :))
How the fuk you buy a distressed property and make tons of money rehabbing it with a traditional bank ? :))
I want to be an apprentice
Apply here: www.freedommentor.com/apprentice
Phil Pustejovsky how so you gain experience so that you can one day get approached for a hard money loan? What would be considered experience?
Thank you...
thank for awaress of loan
I'd like to know how'll to get loan.
pls guide to me all about it.
Hi My name is Abraham Villafana am new as an real estate investor
Look it's my first deal I just wanna make Commission off deals.I have a Motivated seller property $100,900 ARV $157,933 It rents from $350 - 450.
My Leander just hit me up an told me if I can get it under contract he'd get his guys to reach out.Whats my next move I don't really have any money?
Get it under contract
How an will it cost me?
Can't find the memo form for my state
And thank you
Depressing indeed 😫
people like him just don't want others to take the chance and find a hard money...
How can he be our hard money lender?
Join my Apprentice Program: www.freedommentor.com/apprentice