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WHAT IS HARD MONEY?

Hard money is an asset based loan, which typically comes with a short maturity as well as a higher interest rate and fees. Hard Money is an excellent real estate tool as long as you understand how you specifically are going to take advantage of it in order to profit from it. Hard Money loans can be used for acquisition financing, acquisition and renovation financing or renovation financing depending on each particular situation. Understanding your exit strategy and a backup plan to that strategy will help assure you success. Without a plan in place and fully understood, I suggest other types of financing that either create more structure or offer different elements of flexibility.
  • Creating the plan

    In creating a plan, we suggest you spend several hours evaluating your options, capital on hand, reserves (in the event they are needed), talking with contractors and other members of the team you are going to assemble to make your plan a reality. Terms for Hard Money usually include upfront fees (origination fees) plus an interest rate equal to 10%-25% depending on many different criteria. Terms range anywhere from 1 month to 1 year with additional fees in the event an extension is required. We recommend you ask your hard money lender to provide you with a copy of the note and mortgage prior to closing to review all terms. Almost always the terms are not negotiable, but rather it is an education process for you. Below are a few scenarios of illustrating hard money lending vs. conventional financing. If you want to discuss your particular financing needs, please contact us.
  • Scenario #1 – Buy, Rehab, Resell

    Subject Property: 123 Main Street Asking Price: $55,000 ARV (After Repaired Value): $125,000 Repairs: $20,000 Repair timeframe: 45 days After repaired Sales Price: $125,000 Commission: 6% DOM (Days on Market): 90 days
  • Conventional Financing option:

    1. Minimum of 30 day closing 2. Generally no funds available for rehab 3. Generally required 20% of purchase price as down payment 4. Full document loan package required 5. 10-20 day appraisal period 6. Usually requires full price offer 7. Interest rate: 7% (non-owner occupied) 8. Closing fee: 1% of loan
  • Financials of Conventional Option:

    1. Down Payment: $11,000 2. Loan Amount: $44,000 3. Repair funds: $0.00 4. Total out of pocket money (this is actual dollars needed to do the deal): $31,000 5. Commission: $7500 6. Interest expense: $1,154.99 7. Closing Fee: $440.00 8. Interest on your investment (7%): $813.75 9. Total Profit: $40,091.26
  • Financials of Hard Money

    1. Loan Amount: $73,125 (65% of the ARV of $125,000 less down payment)
2. Down Payment: $ 8125.00
3. Repair Funds: ($73,125-$55000): $18,125
4. Total Out of Pocket Money: $8,125
5. Commission: $7500
6. Interest Expense: $3718.86
7. Closing Fee: $3656.25
8. Interest on your investment: $210.36
9. Total Profit: $34,914.53 As you can see, utilizing hard money does impact your bottom line, however the return on investment (cash on cash return) is much higher with hard money. Additionally, with the lending markets of 2012, the questions is, would you rather make $34,914.53 or not make anything at all?
  • Scenario #2 – Acquisition Financing vs. Refinancing

    In most lending environments, there is a significant difference in lending options between Acquisition financing and refinancing and existing loan. I will illustrate a basic scenario between the two, please contact me if you have further questions or need further explanation. Hard money for the purpose of leverage and building a rental portfolio is a wonderful tool, so long as you have a plan. Scenario: Investors X are seeking to purchase a duplex to add to their existing or non-existent rental portfolio. They desire to acquire a foreclosure in need of repairs, fix up the property and utilize the cash flow of the property to service the debt, build wealth and a cash flow business. Subject Property: 123 Main Street Asking Price: $55,000 ARV (After Repaired Value): $125,000 Repairs: $20,000 Repair timeframe: 45 days After repaired Sales Price: $125,000 Commission: 6% DOM (Days on Market): 90 days All items from the buy, rehab, resale scenarios regarding acquisition financing remain the same for the acquisition part of the equation. The primary difference occurs when you go to refinance your hard money loan, versus your existing loan in place from the acquisition. Here is a secret… When you approach a lender to refinance an existing piece of real estate, they loan is now dependent on the appraised value. Generally, it doesn’t take it to account the acquisition price, but rather the appraised value as of the date of the loan. All lenders will require an appraisal and if you are able to successfully restore a building to its value, you are able to in most scenarios get all of your investment (cash) out of the project.
  • Scenario #3 – Buy and Hold

    Buy and Hold >> conventional financing >> hard money option (See Below)
  • Conventional financing

    1. Nothing changes from Scenario #1, you still have loan in the amount of $44,000 2. You still have an investment of over $31,000 3. You have a good rate and term
  • Hard Money Option

    1. Once the work is completed and you stabilize with quality tenants (how do you get quality tenants?) you approach an end lender and ask them to refinance your note. After they receive an appraisal (in this case we will use the ARV) of $125,000 the lender will usually provide you with a loan in the amount of 70-75% however depending on cash flow and debt coverage could be less. 2. Assuming 70% LTV on the loan, you are able to get a loan of $87,500 which would afford you the ability to get all of your debt, investment and costs out of the property, affording you the opportunity to do it again with the SAME money. Please contact me with any questions you may have.

It's really easy.  Let's go over the basics of the lending process.

pre-approval

process

Acquisition and Acceptance

Closing

the Deal

Borrower Obligations

NEW CLIENTS

LOAN APPLICATION

FORMS

NEW CLIENTS

SCOPE OF WORK

EXISTING CLIENTS

REPAIR DRAW

FEATURED PROJECT

Here's a project one of our customers recently underwent, after receiving a loan from us, they successfully used "hard money" to make a quick turnaround on their investment and a significant profit after flipping the property.

SCOTT J LURIE

PRESIDENT

OUR TEAM

SARAH FLOYD

EXECUTIVE ASSISTANT

TANIA NIGH

DESIGN AND MARKETING

ELIZABETH SCHNEIDLER

EXECUTIVE ADMINISTRATOR

SCOTT@FSTREETGROUP.COM

SARAH@FSTREETGROUP.COM

TANIA@FSTREETGROUP.COM

ELIZABETH@FSTREETGROUP.COM

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MILWAUKEE HARD MONEY

5601 W. NORTH AVE • MILWAUKEE, WI 53208

Phone : 414.269.5300

Email : info@milwaukeehardmoney.com