I have a question that may seem obvious.

I'm considering purchasing income producing real estate, specifically Appartment complexes. I'd like to start with a loan amount of 1.2MM. I've been speaking with a friend who is a mortgate broker. We are trying to find a way around coming up with the normal 25% down that conventional commercial loans require I.E, the bank.

Is there any advantage to working with a hard money lender? I know intrest rates and points will be sky high, so I'm considering having them finance just the down payment portion - 25% or roughly 300k worth. Then we go to the bank with the down payment. After we obtain bank financing, we let the property appreciate for 1-3 years and simply cash out refinance and pay off the hard money loan.

Is this possible? This dosent seem possible in my mind, but my broker friend seems to think it is. Keep in mind that the property would be income producing have at least 2 years cash flow records.

In closing I'd like to speak for everyone on this board when I say we appreciate the time you take to address our questions. Opinions from individuals in your field of work come highly valued.


Your thoughts?

You can get up to 80% ltv (w/min FICO of 680). Is the seller willing to hold a 2nd? There are a few options you have the last of which should be hard money. Hard money loans are typically 1-2 year interest only. Problem with hard money is that no hardmoney lender will ever (atleast in my opinion) take a 2nd position lien on a property and ofcourse a bank will never settle for anything but a 1st position. Avoid hardmoney, get a standard loan (watch the prepayment penalties) and see if you can get the seller to work with you and hold a 2nd. That would be the best route. A loan with limited prepayment penalties may be expensive in the short term loan but you will be able to cashout quicker. Give me a buzz at the number listed in my signature if you have any questions of if would like explore any options further. Naj.

My perception of "hard money" lenders is that they are really collateral lenders. Being in junior position with little possibility of seeing their money in case of something going wrong is not where a collateral lender wants to be.

As mentioned before, getting the seller to keep a 2nd mortgage sounds more doable.

Thanks for your input guys, it makes perfect sense. Have either of you ever seen owners carry a 2nd on a major real estate deal? It would seem to me that as a seller I'd think the buyer wasnt financially stable enough to finance the entire note, so why loan him MY money?

I agree with the methodology, but wondering how often this can be applied in real life. I appreciate the options this board gives us. It's a very good tool to interact hands-on with lenders and fianciers.


Your thoughts?

Seller 2nd's happen ALL the time. Sellers usually are selling property that has appreciated so they are recouping their initial investment + a little more, and if the want to get rid of the property, most dont mind waiting a year or two for 10% of the selling price.

I work with alot of hard money deals and they don't want to lend more than 60-70% and won't take 2nd position especially on an amount that big.

loanuniverse is right - hard money lenders (of which my company is one) are collateral lenders. We/they lend against the value of the real estate collateralized against the loan. If the loan defaults, the lender takes the property and tries to re-sell it to make up the loss.

The industry is NOT in the business of selling real estate, so most of them/us do due diligence to make sure it won't end up that way. In fact, we have yet to be forced to claim or sell a property.

This is also the reason these types of lenders like personal investment on at least 20% of the loan - to make sure that the borrower plans on sticking it out and can't just 'walk away' from the project if things go badly.

While hard money is more expensive and comes with many conditions, good credit and a clean background is not one of them, and funding can be completed VERY fast. Most of the loans we do are actually 'bridge loans' in that they only last a few months until the borrower secures traditional financing at a lower rate.

Hard money lenders are investors like yourself seeking to partner or make profit on your project. It's that simple. Going in this direction means less red tape and a less restrictive criteria for qualification. Still your pay back amounts, deadlines and interest rates make up for it.

Many hard money lenders will offer from $1,000,000 up to $100,000,000 per loan. This wide borrowing latitude enables owners of investment properties to realize their dreams.

What can hard money loans be used for?

Bridge Loans - merging several properties into one loan

Mortgages - Hard Money for Mortgages

Purchasing or Re-Financing

Hard Money for Raw Land Loans

Funding Raw Land Loans

Hard Money Loans to Stop Foreclosure

Using hard money & bridge loans to stall foreclosure on a commercial or residential property

Hard Money for Real Estate Investing

To build up your real estate equity and invesment portfolio

Hello Newcomer,

I will say that Hardmoney Lenders are typically for those in need of quick cash because of some sort of distress in thier current loan environment. They are quick loans at an extremely high interest rate. I have been apart of many Hard Money deals, and the client's high rates and fees are their motivation to pay them off!

For what you're looking to accomplish, there isn't a need for a Hard Money Loan... just based off of the information you've written.

For an apartment building at 1.2, I have structured and currently have in process some apartment complexes with 90% LTV.

Just fruit for thought, I have a project where a seller is carrying 35% of the value of the project as a seller second to make the numbers work for the client. That 10% seems to just keep getting smaller and smaller