Hard Money recap video and formula · Don't Buy Real Estate

Hard Money recap video and formula

Thank you to everyone who attended my hard money loan zoom! We had an amazing session focused on how to secure financing for fix-and-flip projects and ground-up construction.

Here's a quick overview of what we covered:

🔑 Fix-and-Flip Financing:

Identifying the right lenders
Understanding loan terms and conditions
Preparing a compelling project proposal

🏗️ Ground-Up Building Financing:

Budgeting for construction costs
Navigating the draw schedule
Collaborating effectively with contractors

The engagement and discussions were incredible! I hope you left feeling inspired and ready to tackle your next real estate project.

Here is an easy formula to calculate a hard money loan amount.

Loan Amount = min of 80% of Purchase Price + 100% Renovation Cost or 70% of ARV.

Explanation:

80% of Purchase Price: This is the maximum percentage of the purchase price that can be funded.
100% of Renovation Cost: The full renovation cost can be funded.
70% of ARV: The total loan amount must not exceed 70% of the After Repair Value (ARV).

Steps:

Multiply the purchase price by 0.80.
Add the renovation cost to that value.
Calculate 70% of the ARV.
The loan amount will be the smaller value between step 2 and step 3.

Most people ask me “well, what if the loan amount exceeds 70% of the ARV?

If the loan amount exceeds 70% of the After Repair Value (ARV), the lender would typically reduce the loan amount to ensure it stays within the 70% ARV limit. This means the borrower would need to either:

Bring Additional Cash: The borrower would need to contribute more of their own funds to cover the gap between the loan amount and the total project cost.
Adjust the Loan Request: The lender may only approve a loan up to 70% of the ARV, so the borrower might need to adjust the scope of the project or find alternative financing for the excess. (Depending on the lender it may be difficult to reduce the budget for the Scope of Work so make sure that is dialed in.)

This limit is in place to reduce risk for the lender and ensure there is sufficient equity in the property after the renovation is completed.

For more experienced borrowers, the lender may offer higher leverage. For instance, if you’ve successfully completed three flips or BRRR projects, we could fund up to 85% of the purchase price and 100% of the renovation costs, or up to 75% of the ARV.

Hope that helps!

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