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how do i use a HML?

This topic contains 10 replies, has 0 voices, and was last updated by Avatar of areyes areyes 11 years, 8 months ago.

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  • #4375
    Avatar of areyes
    areyes
    Member

    ive come across a few fake HML that still run credit versus collateralizing the equity of a property. im looking for ideas and exit strategies after acquiring a property using a HML. off the top of my head i can either wholesale it, retail it, rehab it, refi-cash out then do any seller financing afterwards. if refinancing into a lower monthly payment, it would be doable for an incoming RB to take over versus taking over sub2 on a bad loan with no equity.

    ive read that some charge 1-6 points up front. i dont have the capital to pay that up front so would it be ideal to get a cash partner to put up the points in exchange for an equity position or beneficial interest.

    ive read about HML in other CRE sites but id like to become knowledge and see if i can apply HML as the 1st tool to acquire properties.

    anyways ill be searching the archives on HML

    someone please school me.

    #24343
    Avatar of homesavers
    NULL
    Member

    Good strategy. However, someone told me “When one door closes another door opens, it is the hallway between them that is a b___” Your “hallway is the gap between getting the Hard money loan closed and the new cash flowing loan an RB can take over.

    #24344
    Avatar of bill_gatten
    bill_gatten
    Participant

    No problema. Justget a commitment from the lender and a resident beneficiary befor proceeding beyond the application fee.

    Never forget: When you buy with a hard money loan, the seller has his tax consequences to deal with; the loan is small (50-60-% LTV if you’re lucky) and the amount being arried is large; and the seller has taxes to pay on is gain.

    A better way:

    Explain to the seller that if he would but get a loan on his own, for which you would pay all costs of cloing, he’d get a much larger cash sum and carry a whole lot less…and…he woujld avoid any tax consequences until the trust termintes — 20-30 yers from now.

    #24345
    Avatar of areyes
    areyes
    Member

    cool. will a HML still lend even if the investor has 400-500 FICO score but the equity in the property is enough for collateral? i would think they’ll just raise the points up front instead. maybe its better to find a credit investor to apply for the HML to minimize the points and then later refinance it afterwards.

    btw: when a HML lender checks the credit, would the HML be shown as debt on the investor’s credit?

    the taxable gain for seller only applies if this was a short sale or REO.

    what about HML for seller’s that have a huge amount of equity and just willing to give it up for a quick sale? anyways thats none of my business.

    @bill_gatten wrote:

    No problema. Justget a commitment from the lender and a resident beneficiary befor proceeding beyond the application fee.

    Never forget: When you buy with a hard money loan, the seller has his tax consequences to deal with; the loan is small (50-60-% LTV if you’re lucky) and the amount being arried is large; and the seller has taxes to pay on is gain.

    A better way:

    Explain to the seller that if he would but get a loan on his own, for which you would pay all costs of cloing, he’d get a much larger cash sum and carry a whole lot less…and…he woujld avoid any tax consequences until the trust termintes — 20-30 yers from now.

    #24346
    Avatar of syoung
    syoung
    Member

    @areyes wrote:

    cool. will a HML still lend even if the investor has 400-500 FICO score but the equity in the property is enough for collateral? i would think they’ll just raise the points up front instead. maybe its better to find a credit investor to apply for the HML to minimize the points and then later refinance it afterwards.

    btw: when a HML lender checks the credit, would the HML be shown as debt on the investor’s credit?

    Alvin,

    Some HMLs want to run your credit once at the beginning of your relationship with them to determine if they want to do business with you, but there are plenty out there who don’t run your credit at all. All of them that I know of loan against the property and not based on credit score (but there may be some out there that do take credit score into account). Some will want to have you personally liable for the loan but others will only need to have the property as collateral. Most will want to lend at 65% or better of appraised value but some will offer higher LTVs. Some will vary the points based on the term length e.g. 6 months = 3 points, 12 months = 4 points, other will just have a fixed point model. Some will roll the points into the loan, others will want the points paid out at the beginning (therefore just get the loan amount to include the points and give it back at closing). Most will want interest payments monthly, some will give you a no-monthly payment option with a balloon payment at the end. I have not personally come across a HML that reports the loan to the credit bureaus (I think those are called traditional lenders…) but maybe there are some that do.

    My point is that there are plenty of HMLs to choose from and, if you need to use one, choose one that doesn’t run your credit and offers the terms that you need for your project. Of the few that I use, all of them came from contacts I made at my local REI club.

    #24347

    Let me ask you a question. Why would you, besides a Short Sale, need to ever buy using a Hard Money Loan?

    Here’s why I ask. What is the purpose? So you’ve got a great opportunity to buy a property at say 70% LTV and you know you can sell it or have a buyer ready for 85% LTV. Let’s say that buyer already is pre-qualified and approved.

    You don’t need to ever go through the hassle of “buying” it first and then reselling it to the End Buyer. Or, you don’t ever have to Assign or Sell your 70% LTV Option. Or, you don’t ever have to attempt or do a Double Contract, Double Close or Simulatinious Closing, EVER!

    Besides, if you use Hard Money, not only does it cost you but it may stop your End Buyer from qualifying to purchase the property NOW because of their lender’s title seasoning issues.

    Just have the Seller put the property in an EHTrust with you as a Beneficiary and then sell the property to your End Buyer and put your profit in your pocket. No Seasoning Issues, No Assigning Contracts, No Double/Simultainious Closing. JUST ONE SALE AND ONE CLOSE. You never have to take title or get a HML, ever.

    The only time I use HML these days is for buying Short Sales or REOs from banks. If you do REOs you still may have a seasoning issue since the bank won’t put the property in trust before you buy it. However, with SS you can have the Seller put the property in Trust before you negotiate the SS. Once you have a SS Purchase Price from the Bank use Hard Money to “Payoff” the loan, not buy the property or change it’s title, since it is already titled to the Trustee, and then sell it in the next room to your End Buyer for a profit. All in the same day.

    The HML is a beneficiary of the Trust and is paid out of the Closing along with their points. My experience with HML with regard to LTVs, Credit etc is great. Being a Beneficiary of the Trust with a pre-approved buyer waiting in the next room ready to close does not require them to base the deal on my credit, LTV or anything but what they will make. Their funds aren’t ever used unless the End Buyers Loan can close.

    #24348
    Avatar of frankr
    frankr
    Participant

    Scott this is great info your contributing. Can you name some of the HML’s you use. It seems the HMLs you use understand the EHTrust. These HMLs that are “EHTrust Friendly” would be a great resource for network members to utilize.

    Thanks

    Frank

    #24349

    To be honest with you, NO. That is why they are called “Private” Money Lenders.

    Most, if not all, Private or HML are very localized. You need to develop your own local list. I found mine at the local REIA and from networking with Investor oriented Lenders and Realtors. Also ask other investors who they use in your area.

    #24350
    Avatar of kberggren
    kberggren
    Member

    @Scott_L._Moyes wrote:

    However, with SS you can have the Seller put the property in Trust before you negotiate the SS.

    Why does the property need to be in the trust before negotiations with the bank? It seems like a significant expense for an unknown outcome. Can it not be placed into the EHT after SS approval?

    Thanks.

    #24351

    @kberggren wrote:

    Why does the property need to be in the trust before negotiations with the bank? It seems like a significant expense for an unknown outcome. Can it not be placed into the EHT after SS approval?

    Significant expense??? What!? Its cost almost nothing to have NARS do this for you (a couple hundred bucks to protect you from a million dollar lawsuit laer on??!! If someone can’t afford to do it right, they shouldn’t be doing it at all!

    However, since you axed…

    Yes it can be done after the SS is negotiated however, while you are negotiating the SS the seller has given a deed to three other investors that all claim they can do it better and faster than you.

    Creating a Trust and vesting the title to a Trustee first assures that NO Additional Encumbraces can be placed on the property and the seller give the deed to anyone else.

    What’s expensive about creating the Trust? At first it only need be a Simple Trust for a few hundred dollars, and I’ll bet the seller will pay that.

    I prefer being a beneficiary of the Trust which is not now a Simple Trust or you or your LLC can be the Trustee while the negotiations are taking place and leaving the seller as THE ONLY beneficiary keeping it a Simple Trust, FOR NOW anyway.

    Once the negotiations are done and you have your end buyer, you can name other beneficiaries etc and direct the trustee to sell the place and pay all of you off.

    #24352
    Avatar of kberggren
    kberggren
    Member

    Thank you Scott. You are right that it is not too expensive to create a simple trust to start and then convert to a full EHT after the sale. I have done a handful of short sales and haven’t lost a seller to someone else while we were negotiating. I’m sure that day is coming- or at least someone will try to pull the rug out from under me while we are working with the bank. The trust would be well worth it just for the protection not to mention that one is still able to do an almost simultaneous close. Thanks for teaching us how to do that.

    Also, will you explain the advantage of buying the note at a discount rather than using the short sale route? What are the details of that process?

    Thanks again.

    #24353

    @kberggren wrote:

    Also, will you explain the advantage of buying the note at a discount rather than using the short sale route? What are the details of that process?

    When “buying” the note at a discount versus buying it as a Short Sale, the Seller is relieved from any deficiency judgments or adverse tax consequences. In other words, no 1099s. And you typically get a better price or bottomline.

    I’m going to be putting something together with one of the best people I know on buying notes just for NARS Members. I’ll let you know when we’re ready. In the mean time, Bill and I are putting together a step-by-step workbook on exactly how I’ve been doing this using the NARS EHTrust. I’m working on an outline for Bill now.

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