One of the most common questions we get from potential lenders is why anyone would pay us 14% and 3.5 points. Hard working real estate investors often have the chance to buy a property at such a discount that they will make significant profit even after paying the rates we charge. In these cases, it’s not the cost of the money that matters – it’s the availability.

Case Study #1: Renovation and flip, 78723

Dena came to us after trying unsuccessfully to get funding from a bank. She had a contract to purchase an investment property from an estate for just $50,000, but it needed $90,000 in repairs. Her bank’s appraiser estimated the house would only be worth $170,000 after the renovations. She came to us frustrated by this valuation and the associated loan offer, and we agreed to lend her $130,000 based on a conservative (but not as conservative as the bank) $185,000 value. Dena finished her renovations and got the finished product under contract in less than 2 weeks, for $250,100.

Dena’s Deal:
Purchase: $50,000
Renovation: $90,000
Sale: $250,100

Interest and fees to Little City: $16,058
Title policy, closing costs, 3% to buyer’s agent: $10,500
Property taxes: $2,065
Utilities, yard maintenance, other: $1,377
Profit: ~$80,000

Little City’s Loan:
Principal: $130,000
Loan to value: 52%
Term: 7 months
Origination fee, processing and draw fees: $6,200
Interest received (13% for 7 month turnaround): $9,858
Return on investment: $16,058
APR equivalent: 21.2%

Case Study #2: Bridge loan for homestead purchase

This is one of the few homestead loans we’ve made, and it was because the loan to value was exceptional. This couple sold their east Austin home and received $200,000 in net proceeds. The new house they wanted to buy was $250,000, so they needed a loan for the difference. They did not qualify for traditional financing, even with a 20% loan to value. At the end of the term, they were able to refinance the loan at a lower rate.

Little City’s Loan:
Principal: $50,000
Purchase price: $250,000
Loan to value: 20%
Term: 1 year
Origination fee, processing fee: $2,500
Interest received (13% for the full year term): $6,500
Return on investment: $9,000
APR equivalent: 18%

Case Study #3: Cash-out refinance, 78701

Joan owned a property in Clarksville (free and clear) and needed access to cash to complete another real estate project. She used the funds to prepare another property for sale and used the proceeds from that sale to pay off our loan. This was an occasion where the loan to value was low enough that we allowed the borrower to roll the first 6 months of payments into the loan.

Conventional financing was not an option for Joan, and her cash crunch could have caused her to lose both properties. Our hard money loan was a welcome solution.

Little City’s Loan:
Principal: $185,000
Property value: $600,000
Loan to value: 31%
Term: 1 year
Origination fee, processing fee: $7,900
Interest paid (13.5% for the full year term): $24,975
Return on investment: $32,875
APR equivalent: 17.78%

Case Study #4: Duplex and fourplex investments

Leasehold properties aren’t the most common use of a hard money loan, but it can be an exceptional tool in the right situation. Robert buys foreclosed duplexes and fourplexes to keep in his investment portfolio. Often these foreclosed properties are not in rentable condition at the time of purchase, which makes them unattractive to most conventional lenders.

Our hard money loans have allowed him to make purchases, make improvements and get the properties leased. Once the properties are rented, he’s able to show consistent rental income and with proven income, conventional banks are more than willing to refinance his duplexes and fourplexes..