Investing in real estate can be complicated. You need to find opportunities, negotiate deals, and put together financing for your project; and that's all before you actually perform the renovation. If you've found your way here, you've likely already solved the financing portion of your deal through hard money financing. Even then, though, the details of your loan can be confusing.
With all of the moving parts of your deal, including your purchase price, down payment, tax escrow, monthly interest-only payments, and more, the amount that you'll actually pay can quickly be obscured. Luckily, The Hard Money Co. has created a free loan calculator that will allow you to develop a clear picture of your potential deal long before you have to sign on the dotted line.
We recommend that all investors play around with the loan calculator. It will help you make a concrete plan for your financing as well as show you how small changes to the structure of your deal can result in an increased profit margin down the road. This overview on how to use our loan calculator will give you the confidence you need to close your deal and continue to pursue your dreams of becoming a real estate investor.
How Does The Hard Money Co. Loan Calculator Work?
If you've done enough research online, you may notice that our loan calculator doesn't have as many variables as some of the other options. You may also notice that the values it returns may be slightly different than what you've observed elsewhere. This is because our loan calculator is built specifically for our hard money loan products. When you complete the calculator with the specifics of your deal, the figure you see will be what is represented on your loan disclosure docs.
We take pride in our transparency, and clearly outline the terms of our products in the loan terms section of our website. These can be referred to at any point so that borrower and lender are on the same page. Here is a brief breakdown of those terms:
- Loans up to 65% of After Repair Value (ARV)
- Minimum of 10% down payment on the purchase price
- Or the collateralization of a free and clear asset
- 6-Month Term with no prepayment penalty
- 15% Annual Interest Rate
Are terms are set in stone and have led to thousands of profitable investment projects over our 15-year history. We recognize that these terms may represent a departure from traditional financing, but the benefits of hard money financing often outweigh these costs. If you have questions about the terms and how they might manifest in your loan, reach out to us to discuss.
What are the inputs for the loan calculator?
The loan calculator takes a look at all the variables that define a conventional mortgage, but we spare you the burden of having to manually input most of these. The only considerations you need to make for your loan calculation are the purchase price, down payment, repair amount, and property tax. Everything else is accounted for behind the scenes. We recognize that certain properties may have nuances that exist outside of this ecosystem, but for 99% of the deals that come through our door, these four values are enough.
This is the foundational element of your loan amount. Many would-be investors take the purchase price for granted when they're preparing their offer. But negotiating your purchase price is one of the best profit-maximizing strategies you can employ. Saving a few thousand on the purchase price puts profit directly into your pocket and saves on carrying costs, down payments, and more.
We calculate the down payment in terms of a percentage. The Hard Money Co. requires 10% of the purchase price in order to close the deal. This is because we want borrowers to have skin in the game. Many investors bring substantially more to the table, and use hard money to push their deals across the finish line. Consider what down payment amount you are comfortable with and proceed from there.
Note: We will only lend up to 65% of the ARV. So how do we bridge the gap between 10% down and this figure? Because the 10% only refers to the purchase price, your rehab efforts can raise the price of your property in order to push past the 65% threshold.
You will likely need some funds to complete your renovation, and those get rolled into your loan amount as well. We finance 100% of repairs, so long as the total loan remains below the 65% ARV. Funds for repairs are disbursed after work is completed through the repair draw process. Prove that the work has been finished to a satisfactory degree and the funds will be in your account within 24 hours.
Any homeowner knows that property taxes are a big expense in real estate ownership. We need to know exactly how much taxes will cost through the term of your loan so that monthly escrow payments can be made to pay this bill. This protects all parties and ensures that when the bill comes due at the end of the year, there are funds available to make the payment.
For most properties, you can find a tax estimate on the MLS or the listing service of your choice. If that information is not readily available, you can likely make an estimate by using a property tax estimator.
What's happening behind the scenes?
While you're inputting your variables, you'll notice that the numbers continue to update. This means that our calculations are being applied on the back end. These calculations included the following elements:
- 15% interest rate, paid monthly through the loan term
- Origination fees, closing costs, attorney fees, and title charges
Revisit our loan terms and try to recreate these calculations yourself. The process is not complicated and being able to replicate the work in excel will give you a clear understanding of how we arrive at these values and will only make you a smarter investor.
What are the output values?
When you're done with your end of the work, the calculator will yield a set of values that define your loan. Assuming you don't change the specifics, these are the exact figures that will appear on your loan disclosure. They include:
- Down Payment: The calculation of your purchase price compounded by the percentage that you'd like to put down
- Total Loan Amount: The calculation of your home price plus repairs, less your down payment
- Cash to Close: This is the amount that you would bring to the table on the day of your closing. This number includes the down-payment, plus any relevant fees
- Interest Only Payment: This number represents the monthly payment of your 15% annual interest rate. This figure is calculated using daily interest and the conventional 360-day year for commercial financing.
- Tax Escrow: This is your monthly payment on your annual tax bill, which ensures that you remain accountable for tax obligations throughout your ownership period
- Total Monthly Payment: Your interest-only payments are combined with your tax escrow.
These figures should give you a complete picture of your loan. Use these amounts in your comprehensive investment strategy to determine what your potential profit may be, and what the ultimate return on investment is.
The calculator is a valuable tool at the outset of your investment project. If you have additional questions about how to use it, please let us know. If you've already completed the calculator, and are confident in your deal, fill out a loan application and start your investing career today.