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 ]