Posted by Carrie on November 12, 2005 at 21:30:46:
I need some clarification on the hard money.
I see some that say 14% interest with interest only payments. Is the 14% on the total or is this on the total monthly… I am basically trying to figure out how much the interest payemnts would be monthly.
Is there a HML out there that will do flat % with total due at closing of the flip?
IE: 45500 needed, 20% interest (9100) so no payments during rehab but the total due at closing after fix up?
Posted by John Corey on November 13, 2005 at 14:00:00:
The interest rate, what ever it is, will be an annual rate in most conversation. Hence the 14% would be an annual number so the monthly rate is approximately 14%/12.
Assume most hard money lenders will not do a flat charge. They would be taking too much risk on what they are earning as the time period may vary for unexpected reasons. Hence they will charge an interest rate.
As Ben noted you can have an impound or reserve or interest account that holds what would be the payments. The idea is your are borrowing the funds needed to make the payments. You would be paying fees on the same but I think you are saying you would be fine with that.
The LTV is the critical point on this. If the loan plus the anticipated payments is below the LTV that the lender allows they really do not care much how the capital gets used.
In my case I would lend you the 65% and expect you to make the payments. Hence I would not ask you to hold the payments in a special reserve. You would have to manage your funds and make the payments. If you really wanted to have a separate account set up for the payments that is fine with me.
Not sure how comfortable you are working out the math (the 20% suggestion in your note seems odd to me). If that is an issue lets work through some numbers and then you can see what the fine detail will look like.