Greetings Massachusetts Investors: It has been awhile since I've had the opportunity to write a column for all of our hard money lenders, borrowers and investors here in Massachusetts. Things have been very busy here at MPL and I am sure the same can be said for all of you buying, rehabbing, building, flipping and selling real estate in MA & RI. The real estate market has been strong to very strong in most Massachusetts towns as a result of historically low inventory during the bulk of the 2013 buying season. I know, first hand, that single family homes in Marshfield were scarce and multiple offers were made on any property listed between $300,000-$500,000 with bidding wars resulting in some cases for the first time since the collapse
I understand the real estate market on the South Shore coastal towns of Massachusetts may not be representative of the real estate market of the entire Commonwealth but I do know that the market has changed and the same opportunities to buy properties at a fire sale price have become increasingly scarce. Regardless of the town, whether Worcester, Leverett, Chelsea, Plymouth, Kingston, Dighton, Mattapoisett, Lynn, Wareham, Hyannis, Fall River or Somerville, the fact of the matter is prices have gone up, thereby making it all the more important to make intelligent and calculated decisions when purchasing a property to rehab and flip
Equally important in making an intelligent and calculated decision to submit an offer to purchase is drafting a cold, realistic profit and loss balance sheet that includes not only the purchase price, closing costs, and all rehab costs, taxes, insurance but also broker fees to sell, carrying costs and fees and costs included in closing a hard money loan from a private lender. All of my successful borrowers incorporate all financing fees and costs in addition to all other fees and costs in determining profit margins.
The good news when it comes to maximizing profit margins is the cost of hard money loans has gone down over the last 12 months. Hard money lenders have reduced their interest rates as s result of an increased number of "private lenders" and "private lending" options. Around 2011, many "new" private hard money lenders entered what had previously been a small, "old boy" network and some offer what appear to be better rates, terms and conditions than the "establishment". Regardless of whether these new lenders are actually lending on better terms and conditions, the sole important fact is that all legitimate hard money lenders in Massachusetts have either reduced their annual interest rate, reduced points due at closing or increased their maximum loan to value ratios. All of this is good news for borrowers and real estate investors as the cost to obtain a hard money loan has decreased, thereby hopefully increasing profit margins.
Presently, my preferred lender/investor is lending at 12-13%, IO monthly payments, no prepayment penalty, 3.5 points on total amount loaned for all loans over $200,000, 100% construction/rehab financed, 25% down by borrower at acquisition plus closing costs, closing within 5-10 business days from receipt of signed commitment letter.