HOUSINGNEWS REPORT
PRIVATE LENDING GOES PUBLIC
“The same goes for borrowers with very low income,” he continued. “If something goes wrong with project, and the borrower needs to inject some additional capital, they will not be able to do so with very low income. Paying taxes is also an indicator. If a borrower has not paid their taxes, that’s commonly an indicator that they are very disorganized or stalling on paying money due.” Typical Terms Lenders must balance risk and reward and with flippers there’s a lot of risk. Flippers are not licensed. There are no standards and no educational requirements. You’re a flipper if you say you’re a flipper. The result is that private lenders often have terms which include 70 percent loan-to-value (LTV) ratios, 3 to 4 points, interest from 8 to 13 percent, and a length of one to two years. Hard money financing supports the purchase of the property as well as a series of repairs and upgrades to obtain a final after repair value (ARV). The property exists at the time financing is extended while the ARV does not. The ARV is an estimate of future value but six months or a year from now a local market may be very different plus it may turn out that repairs and upgrades — even if well-done — are not appealing and the property does not quickly sell. There’s a lot of risk for investors — and private lenders. Some private lenders provided Housing News Report some more specifics on their individual loan terms.
Amount to Purchase Price + Repair Cost,” said Anchor Loans CEO Stephen Pollack. “LTC is driven by the property type, location and borrower’s experience. We typically like to be no more than 85 percent of cost but can go above this on case-by-case basis.” loan finances 80 percent of the acquisition and then 100 percent of the renovations. For seasoned investors that we’ve worked with previously, we’ll occasionally go up to 90 percent of acquisition and 100 percent of renovations.” • “Our rates in the Washington, DC. metro area are typically between 10 to 12 percent with 1 to 3 points and LTVs up to 75 percent,” says Bobby Montagne with Walnut Street Finance. “However, based on borrower track record and property value and location, those can fluctuate. Additionally, we try to always right-size our deals with loan terms that fit the profile of • Eric Krattenstein with Asset Based Lending, explained that “our average
the project, so many of our simpler fix-and-flip loans have six to nine month terms. This shorter term also encourages the borrower to finish the project quickly, which, in the end, nets him or her more profit.” • Josh Stech of LendingHome says his firm will lend “up to 90 percent of the purchase price of the property for our most experienced borrowers.” He adds that the company “will finance up to 100 percent of the rehab costs which gets reimbursed after verification of the work via a holdback/draw process.” Draws and Extensions Hard money lenders insist on a series of draws and inspections as the project progresses. There are two reasons for draws. First, the lender wants to assure that its money is being spent for the project. Second, the lender wants the project to be completed in a workmanlike manner and on time. The property is security for the financing and if a property is correctly
• “One metric we look at is Loan to Cost (LTC), which is the Loan
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APRIL 2018 | ATTOM DATA SOLUTIONS
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