Hard Money – Not as expensive as you think
Post date: Nov 18, 2011 8:2:0 PM
We've had conversations with various developers recently to talk about construction loans for single-family homes. They've traditionally gone through banks and have enjoyed rates as low as 7% for their projects. However, these days, some of those banking relationships aren't there anymore, so they’re looking for alternatives to finance their projects. At first look, our rates of 12-14% can cause some builders sticker shock. However, once you put those rates into perspective, they don't tend to seem so expensive after all.
Let’s use the example of a $250,000 construction loan on a house that would sell for $350,000. Let’s say your borrower has traditionally paid 8%, interest only, for their rate, paid 2.5 points and incurred an additional $3,900 in bank fees and closing costs. The total cost for a six-month loan with interest and fees would be, $20,150. That would represent about 8% of the total amount financed.
If the same loan were done through BankerBroker, the rate would most likely be 13%, 5 points and about $3,900 in loan fees and closing costs. The total cost for a six-month loan would be about $32,650. That would represent about 13% of the total amount financed.
So, you can see there is only a 5% increase in the margin for using hard money. In the big picture, that’s not as large of a difference as you may have thought. This is potentially much lower than an equity partner who may want 50% profit participation. And, it’s certainly worth considering, if your borrowers are looking for alternative means to finance their construction projects.
There are other benefits as well: faster processing, less documentation (no tax forms), no pre-payment penalties, and frequently 100% cost of construction; hard money begins to look downright attractive. We encourage you to give us a call and let us price out a construction loan for you and your borrowers. The cost of using hard money is not as high as you think.
This analysis applies to fix and flip properties as well.
We have $9.2 Million to place
by October 28, 2011
Construction or Units of 4 to 35
Maximum of $2.5 Million down payment per deal
Must have a Minimum of 45% equity per deal
Counties: Los Angeles, Ventura, Orange, and San Diego, San Bernardino areas only
Decent properties and areas