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Examples of Hard Money Loans

 

Example A:

In this example a real estate firm wants to purchase an office building for $5,000,000.  The firm needs a new hard money loan for $3,250,000, which is 65% of the property's quick sale value.  This leaves a balance of $1,750,000 to be financed.  The firm must put $1,000,000 of its own cash or equity into the purchase (20% minimum borrower investment is required).  The remaining 15% balance is $750,000, which can be financed with a seller carry back or other subordinated 2nd mortgage.

$   5,000,000        quick sale price
   - 3,250,000        hard money loan (65% of appraised value)
     1,750,000        balance

     1,750,000        balance
   - 1,000,000        borrower cash or equity (20% borrower investment is required)
   -    750,000        15% seller carry back or other subordinated  2nd mortgage
$   0,000,000  

Example B:

In this example a real estate investor wants to purchase an apartment building for $8,500,000.  He needs a new hard money loan for $5,525,000, which is 65% of the property's quick sale value.  This leaves a balance of $2,975,000 to be financed.  The invester must put $1,700,000 of his own cash or equity into the purchase (20% minimum borrower investment is required).  The remaining 15% balance is $1,275,000, which can be financed with a seller carry back or other subordinated 2nd mortgage.

In order to help this investor qualify for a new hard money loan, the funding source can use a blanket loan.   A blanket loan is a single loan over the property to be purchased, and over a second property already owned by the investor, to come up with the 20% minimum investment required of the borrower.

The second property, which the investor already owns, is another apartment building he purchased seven years ago.  Today, the quick sale value of this property is $3,500,000, with a balance of $575,000 owed on it.  The funding source can blanket a single loan over the apartment house to be purchased, and over the apartment house already owned by the investor.

65% of the $3,500,000 quick sale price is $2,275,000, minus $575,000 to pay off the existing loan on the second property.  This leaves the investor with $1,700,000, which can be used for his 20% minimum investment in the purchase of the new property.

1.  Apartment building to be purchased by the investor.

$   8,500,000
        quick sale price
   - 5,525,000        hard money loan (65% of appraised value)
     2,975,000        balance

     2,975,000        balance
   - 1,700,000        borrower cash or equity (20% borrower investment required)
   - 1,275,000        15% seller carry back or other subordinated 2nd mortgage
$   0,000,000

2.  Apartment building already owned by the investor.

$   3,500,000        quick sale price
   - 2,275,000        hard money loan (65% of appraised value)
   -    575,000        to pay off balance owed on property
$   1,700,000        to be used for 20% borrower investment in new property

3.  Blanket loan over both properties

$ 12,000,000        combined quick sale price of the two properties


$   7,800,000         new hard money loan (blanket loan
                               (65% of combined quick sale price)

   -    575,000        to pay off loan on old property
   - 5,525,000        hard money for new property to be purchased 
   - 1,700,000        20% borrower investment in the purchase of new property
$   0,000,000

 

Questions and Answers about Hard Money Funding

Land Acquisition and Development

Hard Money / Land Acquisition and Development Application

Resources: Financial Links /Glossary

 

 

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