Hard Money...I Don't Get It??

Okay, this is what I'm confused about. I read that hard money is good for short term use, to acquire a property, fix it up and sell it or just flip it. But here is where I get confused, how can you possibly do a wholesale flip (meaning I buy at wholesale and sale at wholesale, no repairs) and make a profit using hard money?

I'm asking because the interest is like 15%, on a $50,000 purchase price, that's 7500 extra dollars. If I use hard money do I have to try to get the property for even cheaper than 65 to 70% just cover their fees? What are some alternative for someone who's credit isn't up to par?

Thanks guys. confused

Comments(4)

  • killenjw10th November, 2003

    I think you may have missed something Dee. When you do a wholesale flip you don't actually purchase the property. You control it with an assignable puchase contract. Once you accomplish that you flip (assign) that contract to a buyer for a fee. You don't put up any of your own money unless it is an earnest deposit. Hope that cleared up a few things.

    Jim

  • dlynn10th November, 2003

    Hi Dee
    The 15% would be +/- 7500 a year. Divide that by 12 months (to keep it simple) and you end up at 625.00 a month. If you use the money for ??3?? months. Your cost is about 1875.00. There may be some points to pay. That depends on the lender.
    So if you hold for a few months and make 10-20K.....you see the numbers are not so bad. If you are going to flip the deal.....you should not need a Hard Money Lender.

  • rajwarrior10th November, 2003

    I think that you may have missed something killenjw.

    A "flip" is ANY transaction in which you hold the property for a short period of time, usually 3 months or less. A retail "flip" would be where you sell to an end buyer for retail or FMV value of the property. A wholesale flip is where you sell to another investor at a discount from FMV.

    Assigning your position in a contract is merely one way to "flip" a property (and getting technical, you're only "flipping" the contract, since you never legally owned the property).

    Dee,

    The interest in a HML loan is calculated the same as with any other loan. If you have access to a mortgage calculater, you can figure it up (Quicken, Money, and several websites have them).

    Example: For a $100K loan at 15% interest for 30 yr term, the monthly interest would be $1250. When using HML funds, as dlynn said, there may be additional points (% of loan) to pay as well. IF you're planning on using HML's, then you need to figure in their costs as well when doing your numbers.

    Roger

  • DeeLewis10th November, 2003

    Oh, okay, that makes since. Well, I am going to flip deals, but with REO's, I don't know if I can assign them, so if I can just purchase them wholesale and resell them or do some work, I was making sure I understand. Thanks guys!!

    Dee

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