How Do I Structure My Payments To A Hard Money Lender Over 1 - 2 Years? Is That Possible With An Inc
If I get a hard money loan on a property that brings in income. And I promise to make payments to the lender with the rental profits, How long will they give me on the loan to pay it all in full.
I know that traditional lenders will lend up to 30 years.
And I head that hard money Lenders only do it for about 1 or 2 years. How is that possible to pay them off if I only have 2 years to do it. What should I do if a hard money lender gives me 1 - 2 years to pay back the loan. How do I structure my payments.
Example
Property Value 675,000
Purchace price 500,000
My downpayment 100,000
Loan on property 400,000
The property is a 8 unit building that brings in 95,000 a year after expences
Help!
HML terms vary. Some will loan on a longer term. Most 3-5 yrs. This gives you time to do any rehab, and then refi.
You should try to structure your loan on a 30% ammort. with a balloon in 5 years. Make sure there is no prepay penalty.
When you go short term hard money, you are in a sense putting yourself in harms way. Most really large real estate holdings have in the past stumbled by using short term money in expectation of replacing with long term money. Sometimes the market moves and this cannot be done.
The proper method is a refinance of the property. Or, if you like, you may renegotiate the short term loan by proper payment of a fee or adjustment in interest rate on due date. I would start this type of extension a bit in front of the due date. There is always the possibility that you have taken to your bosom, what is called a "Snatch Lender". This is a lender who made you a loan to create such a problem and he then goes for the property either by forced sale under threat of foreclosure, or by having another party negotiate a sale at a really low price, just to solve the problem.
There are answers to all of these events you might ask der Donald Trump how when he got forced in Atlantic City he found a new partner with lots of money. So you are not alone.
Enjoy, Lucius
What in the world is a 30% ammortization. I've heard of an amortization schedule but Ive never heard of this. Can someone explain.
30% amortization is paying off 30% of what your loan amount is. The time frame that you do this in is negotiable and contingent on the rate of return the lender chooses and that you agree on as well.
The example you use does not need a hard money lender since you have a 20% downpayment on the real sales price of 500k. Unless you or the property do not meet minimum standards of a lender(property condition or FICO score)
Finding the lender who will loan on a 8 unit building in your state is your first assignment in this example. Understanding the financing possibilities of the type of property you persue is an absolute must.
Only when you know how to get out of the property , can you confidently get into it. Two or three scenarios,examples or models of the process, the steps you would have to take ,mapping out the profit or loss that might occur.
Short sale and wave goodbye to the 100k, take a note for your cash and leave it locked up in the property, Refinance the improved property after 6 months of evenings and weekends, ??????????
One hard money lender advertizes 65% max loan to value, 7 points discount and monthly payments using 18% apr on the loan balance. So 439k would be max loan.$30700 points and $6600 per month interest only payments. Lucky to roll the 30700 into loan amount, and its now 470k and $7050 per month
That pretty much eats up the $95000 per year cash flow after expenses.($84600)
$10400 cash flow to protect against the vacancy factor. Maybe you have $15000 left over from the $100,000, so its $25,000 to steward your property thru the next ______ months before you can possibly refinance.
$30,000 plus $84,000 is $114,000 return on $439,000 invested. 25.9 % return, the real cost of the money if you go 12 months. 6 months and its 32% apr.
GOOD DEAL FOR ?
Food for thought.