Tag Archive for: #hard money loan

Can I Get 100% Financing with Hard Money?

Can I Get 100% Financing with Hard Money?

While hard money is flexible, can you really achieve 100% financing with hard money? The answer is yes! The beauty of true hard money is that you can achieve 100% financing for flips. While there are some situations where we can’t do 100% financing, it is possible in most cases. For investors who are doing flips or even BRRRR rentals, they are getting the properties at a discount. This is what makes it possible to cover all of the financing for the property. How can you get a hard money loan to cover the purchase, rehab, and closing costs? Let’s take a closer look!

Who can we help?

Here at Hard Money Mike we can help those who do 20 to 30 properties a month, as well as those who are just starting out in real estate investing! Unlike most large lenders that don’t do 100% financing, we are able to as long as it’s a really good deal. A good deal is one that is all in at 70% to 75% ARV, as well as where the property is at. Just to clarify, ARV stands for after repair value or what you can sell the property for after all of the repairs have been done. 

For example:

If you are going to sell something for $400K, we can lend up to 75% of that ARV. You will need to put the purchase price, rehab, and some of the closing costs in there in order to make it work. In situations like these, we would be able to finance at 100%. For investors who have multiple projects going at once, 100% financing can make a huge difference in their success.

What is a good deal?

A good deal is one that you are going to make money on. All lenders want is to have investors make money, pay them back, and do it again. Another important factor that we look at as a hard money lender is where the property is located.  While some properties might be easy to find comps, there are some rural properties that are harder to find comps on. In order to be successful in real estate investing, it is important that you not only make sure the location is good, but that you also create a property that is sellable. A hard money loan can help you achieve your success without requiring money out of your pocket or the need for a partner.

For example:

We had someone call us who had decided to use his dads money to buy and sell a property. When they got to closing, the dad said that he wanted not only his interest rate but 50% as well. While it seemed to be an easy way to get the money he needed for the investment, it ended up costing him more. A hard money lender might have a higher interest rate compared to traditional lenders, however, it is still a lot cheaper than having a partner.

Leveraging hard money at 100% just makes sense!

Keep in mind that these deals are for a shorter period of time for 6 months or less. This is because you are financing the whole amount. We just funded a deal for $120K. After all is said and done, they are going to make between $30K and $40K. Just by paying a hard money lender $6K to $8K for interest and expenses, they can make a really good profit on the property. That’s where leveraging hard money at 100% just makes sense! 

No hard pulls on your credit!

Another benefit to using hard money is that it doesn’t show up on your credit. This is because we don’t do hard pulls. While you don’t need a good credit score in order to be approved, it is important that you have a decent score. We understand that a lot of investors use their personal credit cards to cover their business expenses. As a result, it can quickly drive down their credit score. Unlike traditional lenders, we have the flexibility you need. Our main goal at Hard Money Mike is to help you succeed in real estate investing! 

We are here to help!

If you have a deal that you are interested in, and want to find out more about 100% financing, give us a call. We are happy to run through the numbers with you to determine if the property will be a good investment. There is a quick form on our website that you can fill out to give a little more information on the property that you are looking at. This form would include information about the property, some details about you, what you are trying to do, exit strategy, credit score, and your reserve. In the end, our goal is to determine if the deal is going to make you money. 

Here at Hard Money Mike we work with “value at” properties and can offer 100% financing today! Contact us to find out more! 

Watch our most recent video Can I Get 100% Financing with Hard Money to find out more!

Hard Money Loan Requirements Explained

Understanding hard money loan requirements is the first step in finding the right lender for you!

Before you get started on your fix and flip, you need to know a few things:

What does your lender look for? 

What do you need to know about each project before applying for a hard money loan? 

The more you know, the better deal you’ll be able to find.

What Do Hard Money Lenders Look For?

Lenders look at a lot of things when determining deals. It’s important to have details for each piece of your project so you can make sure there aren’t any delays in your work.


ARV (After Repair Value) is a critical component when calculating a hard money loan. 

Hard money lenders look at the projected value of your property. By looking at comparable properties (comps), lenders estimate the projected value based on the work you plan to complete. 

Scope of Work and Budget

Similarly, lenders look at the scope of the work you plan to put into your project.

What renovations are you planning? What is your budget? Having clear answers to these questions helps the lender determine what exactly you’re going to need to put into the project in order to have a higher ARV.

Your lender will also look at the purpose of the project. What is your ultimate goal? This lets lenders estimate the profits and the LTVs when you’re figuring out a deal.

Exit Strategy

You need to have an exit strategy. Are you selling, refinancing, something else? 

Having a clear exit strategy demonstrates your ability to manage the project well and follow through with generating returns.

Specific Loan Amounts

How much are you looking to borrow? Do you want the full amount or just partial? 

If you can put some of your own money into the project, you’ll need a clear idea of how much of that goes towards the purchase price vs. renovation costs. 

Since timing is so important in keeping your project moving, you want to know upfront if you’re putting your own money in escrow for repairs or relying on hard money loans for those costs.


How long is your project going to take? The longer the project takes, the more important it is to buy lower to ensure you’re able to have higher profit margins so you can pay back your loan. 

Interest, taxes, insurance, and even HOA fees add up every month you hold your loan and work on your project. 

The faster you can turn your project into something that is making you money, the less risky you are as a borrower.

Hard Money Loans: Profit Expectations

Ultimately, estimating profit revolves around three things:

  • ARV (After Repair Value)
  • Purchase Price
  • Renovation Costs

Lenders typically max out at 70% to 75% of the ARV, but LTVs (Loan to Value) can also affect those numbers.

If you estimate your ARV early on, you can calculate what money you have to put into the project before sending it to lenders. This lets you propose a more detailed plan which can help you find a better deal.

You can use this free tool to help you calculate those amounts quickly and easily. 

Does Your Project Meet the Requirements?

We want to make sure your project is profitable and able to meet hard money loan requirements. 

If you have a deal you want us to look at, we’re more than happy to help! You can always reach out to us at Info@HardMoneyMike.com.

You can also check out our YouTube channel for more information about how to successfully navigate your fix and flips.

Happy Investing.

Second Mortgage Loan Explained: Real Estate Investing Tips

How to use a second mortgage loan as a real estate investor (and where to get it!).

In real estate investing, you’re going to need some extra money every once in a while.

Getting a second mortgage on your investment properties can be a way to get this money.

Let’s go through what a second mortgage loan is, how you can use it, and why they’re an important tool.

What Is a Second Mortgage Loan?

Put simply, a second mortgage loan is a loan that’s put behind your first mortgage on your property.

If you have a mortgage and you have good equity (meaning you’re under 80% on the loan to value), you can look at a second mortgage.

Why is a second mortgage so powerful for a real estate investor?

It unlocks the equity that has you trapped.

When all of your money is tied up in your properties, second mortgage loans are a way to free it.

How Can a Real Estate Investor Use a Second Mortgage?

Once you free up your equity with a second mortgage, what can you do with it? Your second mortgages probably aren’t going to be a huge amount of money – not enough to buy an entire new property.

But here are a few common uses of a second mortgage:

  • Finishing an over-budget flip.
  • Upgrading a rental property for a new tenant, refinance, or sale.
  • Using it as a bridge loan to buy your next project before your current one is finished.
  • To pay down credit card balances to lower usage and raise their credit score for their next bank loan.

In any situation where you need quick cash for your business, second mortgages are a great option. They’re the perfect way to tap into the equity you already have to reinvest in your business.

How to Get a Second Mortgage

There are 3 main places you should look to get a second mortgage.

  1. Some local banks and credit unions offer HELOCs up to 65 or 70% on investor properties. So if you have a property that has that kind of equity, that’s your number one go-to source.
  2. Real, local hard money lenders like us who are flexible and understand real estate investing will offer second mortgage loans. We don’t fit loans into a small box – we’ll help you figure out whatever you need whether it’s a second, or even a third, mortgage.
  3. There’s something we call real private money. These are real people from your community who will lend you money. If they lend to you, they’ll get a better return on their money than they would in a bank, and typically a safer return than they’d get in other investments. 

Help with a Second Mortgage Loan

If you want help finding the right way to tap into your equity, reach out at Info@HardMoneyMike.com. We’d be glad to help. 

Wondering what other lending options you have out there as a real estate investor? Download this free resource to learn your options.

Happy Investing.

Why You Need Hard Money in 2023

Institutional lenders aren’t cutting it this year. Here’s why you need hard money.

When the Fed raises rates and big institutions like banks and hedge funds tighten money… Where is the real estate investor supposed to go to get funds?

2023 is a great time of uncertainty. Uncertain times can be the hardest and most expensive – but best! – for buying.

One solution for real estate investors: hard money.

It’s a simple truth. In 2023, you need hard money. Let’s explain why.

You Need Reliability

True hard money is from real people. They need the interest they get from these loans whether times are good or bad, so hard money loans are less likely to change with volatile markets.

These lenders don’t run when they see inflation, and their interest rates won’t fluctuate nearly as much as institutional rates.

In fact, banks’ interest rates are getting closer and closer to hard money rates. In the Colorado market, many banks are only charging 1 point less than hard money lenders.

You Need Hard Money’s LTVs

A huge issue with bank and institutional lending right now is the amount they’ll lend.

We’ve had a recent client share their experience with a big private lender. While they used to lend 90-100% of the purchase price of a property, they’re now offering 49% for comparable real estate in metro areas for certain borrowers. In smaller communities, they’re down to 60% LTVs. 

Banks must do this, not just to mitigate risk, but also to attempt to keep their prices low. Hard money is not this way. Hard money rates and terms are the same in good markets and in inflationary ones. The hard money you get in 2023 is the same hard money you got in 2020.

You Need Flexibility

You need a lender who will not only be able to move with the markets but also work with your specific deal.

Maybe you need a second lien, a unique land loan, a bridge loan to buy your next project, or a bridge to cover the costs of a house that’s been stuck on the market for too long.

Big lenders and banks don’t provide those types of loans. And with the market that 2023 is bringing us, you’ll need all the flexibility you can get with your lender.

You Need an Investor-Friendly Lender

Many smaller banks and credit unions aren’t even open to lending to real estate investors. For your career, you need a lender who will work with people who have real estate businesses.

Larger institutions, however, have raised their credit score requirements so high, it boxes many investors out. Banks have raised their minimum credit score by at least 40 points. They used to take people with as low as a 620; now, it’s 640 minimum.

The problem is, some real estate investors don’t have great credit scores due to high credit usage on the lines of credit they use for flips. Hard money is the answer here, since it doesn’t keep strict score requirements.

Getting Hard Money in 2023

Other types of lenders have raised their rates, increased their costs, and lowered the amount they’ll give you in 2023.

If you need the same amount, for the same price, try hard money loans. Hard money doesn’t scrutinize you as a borrower and make decisions based on the Fed. It bases your loans on your property and your deal instead.

Not all lenders – of any type – will give you the same loan. That’s why we want you to use this free deal analyzer. You can enter information for three hard money lenders (or a hard money lender, a private lender, and a bank) to find out which option will truly save you the most cost.

Any other questions about hard money? Reach out at any time to Info@HardMoneyMike.com

Happy Investing.

Hard Money Lender vs Bank Financing: Why You Need Both

Which funding should you get? 3 case studies on a hard money lender vs bank.

In the typical real estate career, you follow this funding path:

  1. You use hard money because it’s all you can qualify for.
  2. With experience, you start qualifying for bank loans, so you move on from hard money.

What most people miss is a crucial third step:

  1. Now you have two valuable funding sources in your toolkit.

Most people view hard money as a stepping stone to “better” financing. While true in some ways, putting hard money in the past can make you miss out on some amazing opportunities hard money offers.

Let’s get over 3 examples of clients we’ve had who are far into their real estate career but still benefit from hard money. And lastly, we’ll go over how you can make that big step into bank financing.

3 Case Studies – When to Use a Hard Money Lender Instead of a Bank

We work with people who have been doing the investing game for 10 to 15 years… who still utilize hard money whenever they need it. Here’s what three of those people do and how they use hard money vs bank loans.

Mary: Cross Collateralizing with a Hard Money Lender

Mary is a developer who builds big homes here in Denver – anywhere between $2-4 million.

She has bank financing set up for the majority of the construction period. However, when she finds a lot or house she wants to scrape, it usually needs to close within 7-10 days. Her bank funding can’t work that fast.

So, she comes to a hard money lender to get the property quickly and with 100% financing. She cross-collateralizes (aka, uses her other properties) to make sure she gets full funding with us.

Once the property is approved through zoning and everything, her bank funding kicks in to pay off the hard money loan.

Jeff: Hard Money Lender a Solution to a Bank Limit

Jeff is a flipper who does about 4 or 5 projects per year here in town. They’re pretty good sized, ranging from $400k to $800k.

But his bank sets a limit, and he’s only able to do about two flips at a time with them. So when he has two projects going but finds a great deal, he’ll go to a hard money lender. Hard money frees him up to jump on a good property, even when his financing is tied up elsewhere.

TC: Hard Money Lender Is Faster Than a Bank

TC has been a longtime client of ours who also uses other financing too. He came across a deal where he was one of five bidders. On the very first day, he bid $30,000 less than everyone else because that’s what would fit his budget with construction and everything.

And he won the deal. Why?

Because he could also close in less than 10 days with a hard money loan. He didn’t need an appraisal, inspection, or anything else that prolongs the sale and gives sellers a headache.

Using a hard money lender instead of a bank was the only way he was able to get that property for 10% less.

You Need Both!

It’s not either hard money or bank loans. You need to use both.

At the end of the day, bank loans are almost guaranteed to be cheaper with interest rate and points. They should always be used when possible. But sometimes bank loans aren’t realistic – you need money now, or you lose out on a great deal.


  • Cheaper, lower interest rates and fees
  • You get the entire loan upfront
  • Require a good credit score
  • Take longer upfront (closings can take 2-6 weeks or more)
  • Necessary for long projects

Hard money lenders:

  • More expensive, higher interest rates and points
  • Can take longer in the middle of the project to get funds from escrow
  • Lenient on credit
  • Fast closings (sometimes within days)
  • Flexibility
  • Great for short-term projects

Hard money lender vs bank? They both need to be valid funding options in your career.

How to Get Bank Loans for Real Estate Investing

It may be important to keep hard money in your back pocket, but you should always be moving toward acquiring bank loans. This cheap, long-term funding will fuel the majority of your career.

Here are the steps you need to take to make the leap from hard money to bank funding.

1. Be In Business for 2 Years

You need at least one of the following for bank loans:

  • A W-2 job that meets the income requirements (aka, investing is a side gig for you and you make plenty of money elsewhere).
  • Your business has been established for 2 years or longer.

If real estate investing is your full-time job, then you need to show that you have experience and income from it. In that 2-year span, you will want to complete at least 3 successful projects.

2. Have a Good Credit Score

Bank loans are highly credit score-driven. You’ll need a score of at least 680, but higher if you want better terms. This is something you should be working on now so it’s ready when you really need it.

If you struggle with your score because of credit usage from your business, check out this article for a solution.

3. Down Payment Funds

This can be a major obstacle for newer investors. Luckily, you have a lot of options for help with the (usually 20%) down payment for bank loans:

Find Investor-Friendly Banks

One last tip on the journey from hard money to bank loans: find the banks that like to work with real estate investors.

Most of the large banks, like Chase and Wells Fargo, will only work with a very, very select few investors. Instead, you should look at local banks and credit unions that offer investor loans.

Don’t bother barking up the wrong tree. Find a lender who wants to help real estate investors. As you move through your career and get your experience, start reaching out to find the banks in your area that love to work with investors. 

Need a Hard Money Lender vs a Bank?

Need a quick close, gap loan, bridge loan, or a fix and flip loan? Reach out at Info@HardMoneyMike.com

We can help you find unique funding that’s outside of the banking box.

Happy Investing.

Cottage in the City

In today’s wild and crazy world, who wouldn’t love a cottage in the city? You get the convenience of being in the city, but at the same time you get the warm, cozy feel of a cottage. And not just any cottage, this home offers far more than your average cottage. Jed and Sam found this property out of sheer luck, they weren’t even initially thinking of looking in this neighborhood. They stumbled across a diamond in the rough and knew it from the get-go.

This 5-bed, 3-bath, 2,506 square foot home hadn’t been updated in over a decade and these guys were able to purchase it for $260,000. Their scope of work included everything from demo to bathroom facelifts.

Let’s start with the kitchen. Not a bad looking kitchen to start with, the design is gorgeous. But by replacing the appliances and countertops and giving everything a new shine with some fresh paint, it looks like a brand new kitchen!

And the best part about flipping is that you don’t always have to go above and beyond. Simple fixes such as new carpet, smooth ceilings, and refinishing some wood can make all the difference.

These guys put in their best effort in the small touches that aren’t seen in the photos. Things such as closet lights that are motion detected, and mirror defoggers in all of the bathrooms so the mirrors won’t fog up during a shower. When all was said and done, this homely cottage shot up in value like this neighborhood had never seen. At the onset of this project, they set their ARV at $340,000. But interested buyer after interested buyer set the final offer price at $388,500!

Do You Need a Hard Money Loan?

With hard money loans, it’s very important to shop around. Every hard money lender will offer a slightly different type of loan, with slightly different requirements.

There is a loan that is perfect for your credit, your plan, and your property. You just have to find it.

Contact us for a Hard Money Loan

Check us out on YouTube

Hard Money Mike funds loans in Colorado, Oklahoma, and Texas.

How to Calculate Your Hard Money Loan Amount

What does your lender take into consideration to calculate your hard money loan? Here’s what you need to know.

How much could you get in a hard money loan?

At least 50% of your success as a real estate investor will come from using and understanding leverage well. Simply knowing your numbers gets you ahead of the curve.

You need to be able to figure out a ballpark number of what a lender will give you for your property. Let’s go over how to calculate your hard money loan, what costs you’ll need to know about, and run through some examples.

Calculate a Hard Money Loan: Maximum LTV

There are two main calculations for a hard money loan.

The first is: What is the maximum loan value a lender will offer?

Every hard money lender has a maximum loan ability. This maximum is based on the property’s after-repair value or ARV.

ARV is what the property will be worth at the appraisal when you sell or refinance. This is the number the property could go for on the open market after you’ve done all your renovations.


Traditional lenders use “loan-to-value,” which means they base their loans on the cost of the property. 

But hard money is designed for real estate investing, so they lend with the assumption that your property is value-add. It’s a property that needs work, and when you put in the work, the home will be worth more in the future.

The after-repair value is what hard money lenders base their loan on. Most lenders will lend somewhere between 70-75% of the ARV. However, the actual loan-to-ARV percentage you get depends on factors like experience, credit, etc.

Most hard money lenders will only approve a loan for an amount you can actually afford. These lenders want two things:

  1. To get their money back.
  2. For you to make money.

75% ARV is the average amount they can lend safely. This amount estimates that you’ll be able to both pay all your costs and still make a little profit for yourself.

Max LTV for Hard Money Example

Let’s look at an example. We’ll keep it as simple as possible and say our ARV is $100,000. This loan amount is likely unrealistic depending on your market, but this calculation works the same with any number.

If $100,000 is our ARV, that means it’s the absolute maximum any hard money lender could loan you. In rare situations, a hard money lender may loan you up to 100% of your ARV.

More common, however, is that you get 75% of your ARV. To figure out this number, you just multiply your ARV by .75:

ARV  ×  % of ARV  =  Loan Amount

$100,000  ×  .75  =  $75,000

$75,000 is the realistic maximum loan you can expect from a hard money lender for a property with an ARV of $100k.

Calculating the loan-to-ARV for a hard money loan is only the first calculation, though…

Calculate a Hard Money Loan: Maximum Actual Loan 

If the first question is what is the maximum loan amount you can get, then the second question is: What’s the actual amount they’ll lend?

You might hear a hard money lender say they’ll lend up to “80/100” or “90/100” – let’s go over what that means.

How to Figure Out Actual Loan

You’ll notice there are two numbers with a slash in between.

The first number is the loan-to-cost (not ARV). For example, if it’s 90/100, that means they’ll lend up to 90% of what you bought the property for. 

The second number is the rehab cost. In the 90/100 example, the lender would give you 100% of the costs needed to fix up the property.

So in this case, they’ll offer you a loan that covers up to 90% of the purchase price and 100% of the rehab costs.

But remember: there’s still the overall maximum loan of $75,000 that we can’t go over.

Calculate Your Costs for a Hard Money Loan

So say a lender tells you they can loan 90/100 and 75% of the ARV, and your ARV is $100,000. That means they’ll give you 90% of the purchase cost + all the construction costs, but that total number can’t be more than $75,000.

Let’s break this down with some simple examples.

Don’t Forget Closing Costs

We’ll say we’re buying a property for $60,000, and it will take $20,000 to fix up.

There’s one more number many real estate investors fail to include here: closing costs. This number includes:

  • What you pay the title company, escrow attorney, or whoever performs the closing.
  • Lender origination fees.
  • Title costs.
  • Insurance.
  • Anything else that goes into the closing of a transaction.

Your closing costs will be dependent on your purchase price. For our $60k property, closing costs will be somewhere between $1,800 and $3,000. We’ll go with $3,000 for our example.

90/100 Hard Money Loan Example

Here are the numbers broken down for our current example. How do they work out for a 90/100 loan?

Purchase Price:  $60k

Rehab Costs:  $20k

Closing Costs:  $3k

Total:  $83k

Now, if the lender offers 90% of the purchase price, they’d cover $54,000 on this property. That leaves $6,000 (aka, 10%) you’ll have to cover.

They’ll also pay for 100% of the $20,000 construction costs. So as long as you stay in-budget, there will be no out-of-pocket costs there.

A hard money loan covers no closing costs. You’ll need to fund all $3,000 there.

Here’s what we’re left with:

Loan Covers:  $74,000

You Cover:  $9,000

Now you know going in that you’d need $9,000 to make this deal work. 

You can also see that the $74,000 is less than the max LTV of 75% (or $75,000 on this case). But what if our rehab costs were actual going to be $25,000 instead of $20k?

This would push our loan coverage up to $79k. The loan would still only cover $75k, so you’d be stuck with an extra $4,000, totaling your out-of-pocket cost for this property to $13,000.

80/90 Example

To really drive this home, let’s go through the exact same example but with an 80/90 loan.

If the purchase price is still $60k, they’ll give you 80%, so:

$60,000  ×  .80  =  $48,000

Rehab costs are still at $20k, so now the loan would cover:

$20,000  ×  .90  =  $18,000

The total loan amount would be:

$48k  +  $18k  =  $66,000

Your total costs would be:

Purchase:  $12,000

Rehab:  $2,000

Closing:  $3,000

Total: $17,000

For a 80/90 loan, you’ll need to bring in $8,000 more than you would a 90/100 loan.

Other Factors in Calculating a Hard Money Loan

This is a very basic way to calculate your hard money loan. Keep in mind these numbers will shift a bit depending on your qualifications, experience, and credit score.

But even a ballpark number keeps you prepared. And the better prepared you are money-wise, the better terms you can get.

Additional Costs on Your Property

The costs of real estate investing can add up. This is why it’s important to know before closing on a loan – or even before approaching a lender – what you can truly afford.

One more cost that’s easy to lose sight of in the midst of leverage is the carry costs once you actually own the property.

You’ll be paying interest and principal every month, plus the accumulation of taxes, insurance, and potentially HOA costs. These are all amounts that will be coming either out of your pocket or from gap funding sources. 

More Info on Calculating Hard Money Loans

We hope this helps you as you navigate your real estate investment career. Our purpose is to make sure you use hard money correctly, knowledgably, and in the right positions.

Be sure to check out our YouTube channel for more real estate investing breakdowns.

If you have any questions, or a deal you’d like us to run the numbers on, we’d be happy to help. Email us at Info@HardMoneyMike.com.

Happy Investing.

Text: "Hard Money Basics. Know Your Numbers!"

Hard Money Loan Basics: Numbers to Know

The ultimate beginner’s guide to basic hard money loan numbers to know (AKA, your guide to wealth in real estate investing).

There’s money in the money when it comes to real estate investing. But the numbers surrounding hard money loans can be confusing, especially for beginners.

Many investors don’t want to learn these numbers. Just by reading this guide, you’ll be way ahead of the game.

Let’s go over these basic numbers to get you one step closer to being a real estate expert:

Hard Money Loans – Knowing the Basics

As a beginner investor, you need to know the basics about hard money loans.

The two most basic hard money questions you need to know the answers to are:

  1. What’s the difference between loan-to-value and ARV? 
  2. How do you calculate them?

Know the Basics: Loan-to-Value

Loan-to-Value, LTV, involves the:

  • appraised value of a property
  • as it sits right now
  • with nothing changed about it.

As a real estate investor, if a property costs $100,000 as it sits, you know you’re going to put work into it and make it worth more. But that as-is value, the $100,000, is what lenders base their loan amount on. 

Know the Basics: After Repair Value

After Repair Value (ARV) is used more by hard money lenders and the real estate investment world. Banks and traditional lenders more often use LTV.

Because in real estate investing, we’re basing our numbers on what you can do to the property. What can the value be once you fix it up? That’s the number that determines profit, so that number is more important for hard money lenders.

ARV is the target value of what the house will be worth after all your renovations. This ARV should always be higher than the current price of the house when you buy it.

Calculating ARV and LTV

Let’s say you found an undermarket property that’s selling for $100,000. If a lender says, “We’ll loan you 75%,” that could mean two things, and you’ll want to know the difference.

First, if they’re a bank, they’re likely talking about 75% of the value. In this example, that would be:

$100,000  ×  75%  =  $75,000 loan

Hard money lenders will care more about the value of the home after repairs, so they go off ARV. If they loan you 75%, that would be:

$150,000  ×  75%  =  $112,500 loan

If a loan is based on ARV, lenders might want to know – what are you doing to the property? Different renovations will affect the value of the property in different ways. What you will do and the quality of the work will affect the ARV.

Know the basics about LTV and ARV, and your hard money experience will be much smoother.

Hard Money Loan Requirements

What are the requirements for a hard money loan?

What will hard money lenders lend you, and what does it take to get it? Knowing these numbers in advance will help you stay on track to getting profitable deals.

The majority of hard money lenders will lend up to 75% of the ARV. 

So, let’s say a property will be worth $100,000 after all repairs, and a lender offers you 75% of that ARV. You’ll receive a loan for $75,000.

Is that enough? Now it’s up to you to crunch the numbers and see if you meet these hard money loan requirements. Will that $75,000 cover everything – the purchase, the rehab, etc.? And if it doesn’t – how much do you need to bring in? Can you make that work?

What Expenses Does a Hard Money Loan Cover?

A hard money loan covers:

  1. The purchase of a property.
  2. The rehab of that property.

100% financing is possible with a hard money loan, but it’s dependent on a lot of things – your credit score, investing experience, relationship with the lender, and more.

Let’s see an example of how the numbers on that $75,000 loan could work out to cover the flip 100%:

Loan:  $75,000

Purchase Price:  $50,000

Rehab: $25,000

If it’s possible to keep rehab costs at $25,000, you could get this $50,000 property 100% financed by a hard money loan, if the ARV is $100,000.

But let’s say rehab ends up costing $35,000. The total cost of the project would be $85,000, but your loan only covers $75,000. You’d have to come up with that extra $10,000 somewhere else – either from an alternative lender or from your own pocket.

Know the numbers to help you plan ahead with your hard money loan. If you know up-front that rehab will cost $35,000 on this property, you’ll know to only go through with the deal if you’re able to bring in that additional $10,000.

The 75% Rule Hard Money Loan Requirement

You can learn ahead of time whether your project can be 100% covered by a hard money loan. Just follow the 75% rule: make sure the costs of your project are under 75% of the property’s ARV.

Hard Money Loans Calculations

We’ve gone over some of the basics, but there are a few more hard money loans calculations to know.

Hard money lenders – especially national lenders – have two important numbers they go by. 

First, 75% of the ARV is the maximum they’ll lend you.

Second is a more specific breakdown of how that money will be used, usually referred to as 90/100 or 80/100.

Know the Numbers: What Is the 90/100 Number in a Hard Money Loan?

This number is usually around 90/100, but lenders can tighten down to 80/100 or lower. But what does this number mean?

The first number is the percentage of the loan that goes toward the purchase. The second number is the percentage that goes toward rehab. The higher the numbers, the less of your own money you have to put down.

In the case of 90/100, that means your loan will cover 90% of the purchase and 100% of the rehab.

But whatever that calculation is, it still has to be less than 75% of the ARV. Here’s an example

90/100 Calculation Example

Let’s use the numbers from our last example to look at a 90/100 loan. We’ll take 90% of the purchase price.

Purchase Price: $50,000

50,000  ×  90%  =  $45,000

So, $45,000 of your loan must go toward the purchase of the property. But since it costs $50,000 total, you’d have to bring in the additional $5,000.

Rehab: $25,000

25,000  ×  100%  =  $25,000

So, $25,000 of the loan will go toward rehab. That covers all of it, so you wouldn’t need to put any of your own cash into repairs.

So what would this 90/100 loan cover total?

$45,000  +  $25,000  =  $70,000

90/100 vs 75% Rule

But wait, that 90/100 loan example only gave you $70,000. The 75% rule on the same property said you could get a $75,000 loan. So which is it?

The 75% rule (hard money lenders loaning 75% of the ARV of a property) isn’t a guaranteed loan amount. It’s the maximum loan amount.

This maximum rule becomes more relevant as the deals get riskier.

Lenders don’t like risky deals because there’s a good chance you’ll lose money or only breakeven. 

Here’s how our previous example could become much riskier and the 75% rule would become more important:

Let’s say we have that same property with an ARV of $100,000. But this time, the purchase price is bigger.

Purchase Price: $60,000

Rehab: $25,000

Now, let’s apply the 90/100 principle:

60,000  ×  90%  =  $54,000 loan for purchase

25,000  ×  100%  =  $25,000 loan for rehab

Total loan amount  =  $79,000

So if a loan covered 90% of this purchase price plus all of the repair costs, the total loan would need to be $79,000.

But the 75% rule says your max loan for this property with a $100,000 ARV can only be $75,000. So, in this case, you’d get the loan for $75,000, and be stuck bringing in that extra $4,000 the loan didn’t cover.

Why the 75% Rule?

The 75% rule protects you from the other costs from your project. You’ll still have to pay for selling costs, overhead, and loan fees. Yet you’ll still want at least 10% – 15% profit.

If your loan by itself is any more than 75% of your ARV, you’d be set up to make little to no money.

Lenders want to stop you before you get started if they can see there’s a good chance you won’t make a profit. They want to encourage good deals, and discourage deals people won’t be able to follow through on.

The bottom line: remember there are two numbers. The 75% rule is the maximum amount they’ll lend you overall. The 90/100 (or 80/100, etc) tells you the amount of the loan they’ll allocate to purchase and rehab.

What If I’m Still Confused?

These hard money calculations, numbers, and requirements can be overwhelming if you’re not used to them. Luckily, you don’t have to memorize all this stuff right off the bat.

Download our deal analyzer here. With this spreadsheet, all you have to do is enter the numbers. It does the math for you to help you decide whether to pursue your deal, and how much money you’ll have to bring in if you do.

A tool like this can help you know the numbers before you go to your hard money lender. Life is easier for everyone, and more profitable for you, when you know the numbers of a hard money loan.

Calculating Hard Money Loans for BRRRR

If you’re looking at the rental side of real estate investing with BRRRR, what are the numbers you need for a hard money loan? What do you look for in a profitable flip?

BRRRR was designed to let investors get into rental flips with almost no money down. How do you do it? The 75% rule.

What does that mean, and how do we calculate it?

With BRRRR, there’s two loans involved. The first (hard money) loan is to purchase and fix up the property. And the second (bank) loan is to refinance for the long term.

To make the BRRRR process happen with no money down, you have to know ahead of time that you can keep costs under 75% of the ARV.

The Math on a BRRRR Hard Money Loan Using the 75% Rule

75% of what your property will be worth (ARV) is your cap for costs.

Let’s say you’re buying a property, and based on the neighborhood, comps, and all other appraisal considerations, the ARV is $200,000.

Using the 75% rule would give us:

200,000  ×  75%  =  $150,000

Your hard money loan could be up to $150,000. This means if all your costs for the project stay under $150,000, you don’t have to bring any money in. 

With this example, it would be doable:

Purchase Price: $125,000

Rehab: $25,000

Total cost: $150,000

If you could keep rehab costs at $25,000 for the project, all costs would be equal to the 75% ($150,000) loan we’d receive.

If we take the same example, but the purchase price was $140,000 with $25,000 of rehab costs, you’d end up putting in $15,000 of your own money. Still doable, but more expensive.

100% BRRRR Financing in the Future

As the economy turns and we begin to see more foreclosures, BRRRRs will be a great opportunity to build up a bigger real estate portfolio with no money down.

The opportunities are out there, but to do it, your costs have to be at 75% or lower. This number might tighten in the near future to 70%, but all the same rules still apply.

If you know your numbers before you buy, you can use a BRRRR hard money loan to your full advantage with zero money down.

Hard Money Calculator

A hard money calculator is another important tool to help investors know the numbers of a hard money loan.

Beginner and experienced investors alike need to know the difference between loans offered by different hard money lenders.

How Does a Hard Money Calculator Work?

Some lenders will charge higher interest rates with no points. Some will charge higher points, which are percentage points taken out for fees, but have a lower interest rate.

The numbers get complicated fast. How can you compare all this for your specific deal?

The best way to figure out these numbers is to use our loan optimizer, with a free download here

With this loan optimizer, you insert all the numbers – the loan amount, required down payment, interest rates, points, fees, etc –  from up to three different lenders. Then the calculator does all the math to show how much each loan would actually cost. 

It’s a simple way to compare lenders in your area and find the best price.

Example of a Hard Money Loan Calculator

Finding the cheapest loan for your deal can save you thousands of dollars on your project.

(Note: It’s good to shop around to find the best numbers, but don’t shop around forever! Or else you’ll never get to know a lender well enough to get preferential treatment.)

Here’s a walkthrough of how a loan optimizer might compare two lenders:

Loan Amount

Let’s say for a potential deal, you need a loan for $150,000. Both lenders we’re comparing are going to give you that full amount:

Lender A: $150,000. Lender B: $150,000

Interest Rates, Points, and Their Costs

But let’s say Lender A and Lender B have different rates (interest rate) and points (percentage taken out for fees).

Lender A: Rate 9.75%, Points 2.5. Lender B: Rate 14%, Points 0

Many beginner investors look at this and think, “Well, I don’t want a lender with so many points. I don’t want to just be paying fees.” But they fail to actually do the calculations. You’ll be surprised which loan will save you the most money. 

A loan optimizer will calculate the cost based on these rates and points:

Lender A: Daily Interest $406.25, Cost of Points $3,750.00. Lender B: Daily Interest $503.32, Cost of Points $0

As we can see, the daily interest combined with the cost of the points makes Lender B look like the cheaper option so far.

Other Fees

But there’s one more crucial cost we still need to take into consideration. 

Often, lenders who charge zero points up-front end up charging a lot of “junk fees” later. Here’s the example of Lender A and Lender B with all the extra fees highlighted:

Fees. Lender A: Processing $884, Appraisal $0, Credit $0, Escrows $0. Lender B: Processing $1,500, Appraisal $650, Credit $50, Escrows $125 per draw

The various fees charged by Lender B add up quickly, making Lender A suddenly look a lot better.

Final Costs

But let’s check with a final calculation which lender would be the cheaper choice:

Lender A: Total Cost of Funds $12,962. Lender B: Total Cost of Funds $13,408

Here’s our final calculation by our loan optimizer. By the end of the six months, we’d be paying $12,352 to Lender A, or $13,408 to Lender B.

So, Lender A, who had more points up-front, is the cheaper option – by over a thousand dollars!

Yet, if we’d judged these lenders based on our first impression of interest rate and points, we might not have gone with Lender A.

This is why it’s always important to use a loan calculating tool when shopping for hard money lenders. Know the hard money loan numbers – it can be simple! Click this link for the free download of our loan optimizer.

Know the Numbers of a Hard Money Loan

When you know the numbers, you’ll pick more profitable deals and cheaper loans.

There’s money in the money. There’s money in the numbers.

But you probably won’t become an expert in the numbers overnight.

Reach out to us at HardMoneyMike.com with questions about your deals, or with general questions about hard money numbers.

Happy Investing.

Text: "Bridge Loans VS Hard Money Loans"

Bridge Loan vs Hard Money Loan: What’s the Difference?

Though similar, there are differences to know in a bridge loan vs hard money loan.

Some lenders will use “bridge loan” and “hard money loan” interchangeably. After all, they are similar concepts, and lingo varies from lender to lender. But it’s important to know the actual definitions so you understand these terms if a lender uses them this way.

When to Use a Bridge Loan

A bridge loan is a very short-term loan – even shorter than the typical hard money loan. It helps you bridge the space between one project and another.

Let’s say you’re just finishing up a flip. The house is on the market, buyers are showing interest, and now you’d like to get another property bought so you can jump right in to your next flip.

Typically, you use the money from selling one property to buy the next one. But if you want to get that next property started before the current one is sold? That’s where a bridge loan comes in.

A true bridge loan covers up that gap between projects. It gives you the money to close on a new property before the first one is completely sold.

A bridge loan lets you overlap from an old project to a new one.

How is a Bridge Loan Different from a Hard Money Loan?

A hard money loan is longer and broader than a bridge loan.

  • The average bridge loan lasts 30 to 45 days. Hard money loans can last up to a year or longer.
  • Bridge loans get you from one property to the next. Hard money focuses more on a single project.
  • You pay off bridge loans when your old property sells. You pay off Hard money loans when you refinance or sell the property the loan was originally for.
  • You use a bridge loan as temporary funds to close on a house. You use a hard money loan as a more general budget for a purchase. Many come with the option for escrows to fix up the property over time.

Certain lenders do pure bridge loans, while others lump it all under “hard money.” Keep in mind as you’re learning the real estate investment game that a bridge loan vs hard money loan serves different purposes.

Read the full article here.

Watch the full video here:

Text: "How a Hard Money Loan Works"

How Does A Hard Money Loan Work? 

What do hard money lenders look at? There are two main factors you need to know.

Becoming hard money proficient will put you miles ahead as an investor.

Before you run to any lender with a deal, you’ll need to know… How does a hard money loan work? There are two key terms you’ll need to understand: loan-to-value ratio and, more importantly for fix-and-flips, after repair value.

Loan-to-Value Ratio

The first important number a lender takes into account is the cost of the property. The second is the amount of the loan. Loan-to-value ratio is the ratio of the loan and the cost.

Let’s say you have a property with a current appraisal of $200,000. Then you get a loan for $100,000. The loan is half of the value of the home, so your loan-to-value is 50%.

After Repair Value (ARV)

ARV, after repair value, is another important factor hard money lenders consider. The properties targeted by real estate investors are undervalued. They need repair-work done to be brought up to the standards of the surrounding community.

So, lenders look at not only the current value of the house, but also the future value of the house, after it’s all fixed up.

Many hard money loans are based on after repair value rather than loan-to-value. Your lender might offer you up to 75% – not of what you’re buying it for, but what you could sell it for by the end.

What Does A Hard Money Loan Using ARV Cover?

A key factor to ARV is that lenders will lend not only for the initial purchase, but for the fix-up costs too.

Many lenders will put money aside in escrows to use throughout the project to pay contractors and cover other renovation costs.

If your loan considers ARV, it’s possible for you, with ZERO money down, to:

  • Buy a property.
  • Fix it up.
  • Either sell it (fix-and-flip) or refinance it (BRRRR).

After selling or refinancing, you use that money to pay the loan back.

Hard money is designed to build value into real estate. Understanding the role of the after repair value will help you immensely in your hard money investments.

Read the full article on hard money for beginners here.

Watch the full video here: