Hard Money Pros And Cons
Hard money loans are great because they meet the needs of investors for quick availability, less stringent qualifying (personal credit-wise), no prepayment penalties, and so on. But, they are far from being a no-money-down solution, because you still have points (typically 7 or 8 points), closing costs, and loan payments.
Let's look at some numbers for example.
Purchase price: 30k
Repairs: 20k
Resale value: 85k
Sounds good so far. Purchase price plus repairs are 59% of ARV, which is good and fits most hard money lenders' criteria. So, we will get fully reimbursed for labor and materials costs. BUT, we have a few out-of-pocket costs. Let's assume a loan amount of 50k, per the above:
7 points: 3500
closing costs (title work, recording fees, title insurance etc.): 1000
property insurance: 1000
city inspection (post-rehab): 100
loan payments (18% interest, 4 months): 3000
miscellaneous (mowing/snow removal and other stuff): 1000
Total: 9600 out of pocket
Of course, we still make money in the end: sell for 85000, less 30000 less 20000 less 9600 less 6% commission (5100) = 20300 profit. But, as for the myth that hard money means zero out of pocket since it covers repairs as well, it's just a myth.
Questions/comments?
[ Edited by andrewb on Date 12/19/2003 ]
Comments - even though I haven't used hard money loans I'm glad there are sources here much cheaper. We have these loans available at 1.5% origination costs and 14% interest for 1 year, with extendable terms.
However, I would like some of those $30,000 houses you guys have. Out here 30K wouldn't pay for the land under the garage.
Got that right!! how much for the driveway?? I'll trade you even for a sidewalk
[addsig]