Benefits Of A Hard Money Loan

Hard money loans are a fantastic funding solution for those who have difficulty obtaining more traditional loans. They can have great benefits for the borrower.

Banks and mortgage lenders can be quite strict with their lending requirements. Those can make it challenging for those with poor credit or financial hardships to get loans.

That’s where hard money loans come into play, opening up new opportunities for investing in property at a great price. You should know about some of the major benefits associated with hard money loans.

Hard Money Loans are Easier to Obtain

When you choose a hard money loan, you are able to take advantage of the benefits. That’s because hard money loans tend to be easier to obtain than traditional avenues of funding. In many cases, these non-standard hard money loans from private lenders will be approved more quickly with less paperwork.

Hard money lenders won’t do as much background research into your financial history, they can take bigger risks. Whereas banks approve or reject loan applications based on credit ratings and scores. Hard money lenders look at the value of the collateral instead. This collateral is typically a real estate property. Although there are higher risks involved, hard money lenders can justify this by charging higher interest rates and fees.

Borrowers who obtain hard money loans are not usually deterred by the higher interest rates. They don’t plan on having a hard money mortgage forever. Financial columnist and journalist  Jean Chatzky said – debt isn’t always bad, “A mortgage can help you afford a home. Student loans can be a necessity for getting a good job. Both are investments worth making.”

When it comes to deciding whether or not a hard money loan is right for you, you have to think about your likelihood of getting a bank loan and also what your plans are for the property.

Hard Money Loans can Have Benefits

One of the other things you should know about hard money loans is that they are advantageous for those looking for funding right away. If you’re in a hurry to get your funds or you’re struggling to get approved through regular resources like banks or mortgage lenders, then hard money loans can help you get the property you want or stave off foreclosure.

There’s a lot of people out there buying real estate, as the volume of loans to homebuyers looking to renovate and resell increased to about $20 billion last year. That’s a 37% rise from 2016 and nearly double the amount from five years ago. Many of these purchasers took advantage of attractive hard money loans to lessen their risk of foreclosure.

Another benefit of hard money loans is that they can come in handy if you’re trying to buy a new home while selling an old one. Perhaps you need a hard money loan to cover a down payment while the proceeds from the sale of your previous property are not yet available. If there’s not enough time or availability to get a loan from a bank, hard money lenders can help.

Both real estate investors and homeowners can refinance their properties with hard money loans. One thing to always remember about hard money loans is that you want to be quite confident your financial outlook is positive. Most people pay back a hard money loan within a few years once they sell the property. That way, they aren’t stuck with those higher interest rates forever. So whether you’re getting into house flipping or you’re eager to avoid foreclosure, hard money loans will work well as long as you’re ready to repay the loan sooner rather than later.

Hard Money Loans Assist Real Estate Developers

Those involved in real estate development may also use hard money loans for projects that won’t get approved for bank loans. For example, projects that have yet to receive final permits and approval are unlikely to receive a conventional loan because the bank can’t be positive that the project would make it past the development stage. Non-standard loans like hard money funding can be used to finance these projects. Once the permits are all in place, the real estate developer can apply for a conventional loan to repay the hard money loan.

For those real estate developers who want a more flexible funding option, it makes sense to explore hard money loans. If you are interested in hard money loans, you can always ask a reputable lender for more details.

Sources:

“Jean Chatzky Quotes.” BrainyQuote, Xplore, https://www.brainyquote.com/quotes/jean_chatzky_724897.

Sasso, Michael. “Home-Flipping Trend Weakens as High-Interest Lenders Jump 40%.” Bloomberg.com, Bloomberg, 13 June 2019, https://www.bloomberg.com/news/articles/2019-06-12/high-interest-lenders-up-40-even-as-home-flipping-trend-weakens.

 

 

Private Hard Money Lender Means Quick Loan Approval

When you need money quickly for your business, navigating your way through the mountains of paperwork can be hard. What a traditional lender demands can make a quick loan approval deal untenable.

In this instance, more often than not, your best option is a private hard money lender. You can attempt to go the traditional route, but if your application has been rejected then you should consider a private hard money lender.

Why is it Quicker?

Private hard money lenders don’t have the same regulations as normal lending institutions. Many banks were bailed out during the crash in 2008 and new laws have rightfully ensured that they can’t simply give out loans without fulfilling some strict criteria.

This does protect consumers as well as the banks, however, it can make getting a loan quite difficult. Getting approval from a private hard money lender can be easier as they look at the information available to them on a case by case basis. Your credit score is not much interest to them, your assets are.

“Small- and medium-sized businesses need access to a diverse range of finance options, including non-bank lending. These new forms of finance are still small in scale today but they should, over time, bring additional choice and greater competition to the lending market.” Vince Cable, formerly of Shell Oil

A decent private hard money lender will look at what you want the money for, whether they are satisfied that you will be able to repay that debt on their terms and the possibility of a future relationship. Private lenders comprehend the need for quick loan approval. They are usually astute investors who know that time is of the essence in making a good deal, so they will assess your situation quickly.

How Does Quick Loan Approval Work?

Private money lenders can offer you more flexibility in terms than traditional lending institutions. However, in the majority of cases, the length of the loan will be much shorter than normal loans or mortgages. Usually, the terms are around 2 – 5 years maximum, and their interest will be higher. However, they won’t have to refer to a list of stringent conditions or board members who are imposing regulations, and not having to do this speeds up the process.

It is pretty simple to apply for a private hard money loan. First, you will need to present them with your financial data – if that is for your business that you are taking the loan against, or if it is your own personal net worth.

You also have to offer collateral. This is one of the big differences between a traditional loan and a hard money loan. In this case, the collateral is usually the property or asset that you are actually using the loan to acquire. In business, it could be against your premises as you hope to extend or pour money into a new product.

If it’s to flip a property, which many hard money loans are for, then you need to provide information on the property, the area and the potential for profit. You still have to do your homework, they just won’t spend as long scrutinizing it as a bank would. Many private hard money lenders now let you apply online, and some promise approval in up to 36 hours.

Where to Find a Private Hard Money Lender?

Over the past few years, the number of private hard money lenders has jumped. According to the American Association of Private Lenders, there are now almost 40% more since 2016.  So, it’s easy to find one, but make sure you go for a private money lender with a good reputation. You can find a host of both large and small private hard money lenders online. Don’t ignore local ones, but do try and get some referrals.

Private hard money lenders used to be viewed quite cautiously, but times evolve. In a business environment, working capital is required and often a traditional loan process won’t let you access the money in time. It can be beneficial to build a relationship with a private hard money lender to finance deals and grow your business.

Resources:

https://www.bloomberg.com/news/articles/2019-06-12/high-interest-lenders-up-40-even-as-home-flipping-trend-weakens

 

 

What Do Hard Money Lenders Look For?

For individuals seeking capital to purchase a new home, avoid foreclosure, or make renovations, a traditional bank loan doesn’t always work out. Things like a poor credit score or little equity can quickly lead to rejection. However, in recent years, hard money lenders have provided people with a way to get the money they need for real estate projects or to keep their homes.

Unlike banks who look at a borrower’s financial history when considering whether to approve a loan, a hard money lender uses the property as collateral. This means applicants have a much higher chance of getting approved for quick cash. House flippers often turn to these private lenders to secure a new investment before it’s sold. They’re great resources for real estate investors, especially when home sales are up as they are right now. According to the Department of Housing and Urban Development, sales for single-family homes saw a 2.5% increase from June to July in 2019.

However, even though hard money lenders are concerned with credit scores, borrowers should still know what they’ll be considering when evaluating their loan application. That’s why we’re going over some of the top things these lenders keep their eye on.

The Value of the Property Used as Collateral

Because the house in question will be used as collateral against the loan, one of the lender’s primary concerns is the total value of the property.  They need to know that if the loan isn’t repaid, they can recoup their losses. To do this, they’ll need to determine the loan to value ratio. This may require having an appraiser look at the property or having a real estate agent run a broker price opinion that will analyze the value.

If the borrower is seeking a loan to complete renovations on a home they own, the lender will determine how much the property will be worth after the upgrades are made. This is why house flippers often go after hard money loans. Lenders may also include land in the appraisal of the property as well.

It’s important to keep in mind that many hard money lenders won’t give loans for properties occupied by tenants. Potential legal issues could make the loan too risky.

The Borrower’s Commitment to the Property

The last thing a hard money lender wants is for the borrower to default on the loan. This is why they look at how committed the individual is to the property before approving the loan. Yes, the lender doesn’t care about a borrower’s credit score, but they still need to have confidence that the repayment terms can be met.

If a borrower needs the loan to secure the purchase of a home, the lender may want to know if they’ve put any type of down payment towards the property. If they have, the lender knows the borrower has something to lose if they don’t make their mortgage payments. This added reassurance goes a long way.

Lenders may also want to know what the borrower’s plans are for the home. If they plan on flipping it, what renovations do they intend to make? Once they sell the renovated home, what’s their plan for paying back the loan? Many house flippers have a portfolio of investments they’ve made. This is a good tool for securing hard money loans.

The Ability to Repay

The British economist John Maynard Keynes once said, “If you owe your bank a hundred pounds, you have a problem. But if you owe a million, it has.”  Hard money lenders must take this to heart. There’s certainly no surefire way to know a borrower will pay back the loan. However, lenders can look for at a few things that will help them determine whether the venture is a good idea.

Lenders often look at a borrower’s exit strategy for fulfilling the repayment terms. For example, if they’re using the loan to secure a piece of commercial property, the lender may want to know how they intend to start earning a profit. Lenders may also want to know how motivated the borrower is to pay back the loan. If a house flipper doesn’t intend to start renovations on the home anytime soon, a lender may be hesitant to approve the loan.

Hard money lenders are investors too. Because these loans have higher interest rates and shorter terms, lenders can use the repaid money for new loans. Looking at the items discussed above is the best way they can protect themselves.

Resources:

https://www.huduser.gov/portal/sites/default/files/pdf/Housing-Market-Indicators-Report-August-2019.pdf

Private Money Loan Primetime

Real estate markets rise and fall. Different factors affect prices – from schools in the area to good transport links, to the overall economy. It seems that mortgages and loans are increasingly hard to get when dealing with traditional lenders. As with any market, it evolves. In this case, it has meant it’s primetime for private money loans, otherwise known as a hard money loan.

With one in every 370 homes in the U.S. filing for foreclosure in the first six months of last year, there is space for people to pick up bargains. It also means smaller real estate investors can start investing. This has created a situation where private money loans are king. Traditional lenders aren’t lending as much as they used to; their terms are becoming ever more stringent. Private money lenders are becoming more recognized and reputable and more people want to know how it works. It is prime time for private money loans.

What is a Private Money Loan?

A private money loan is a primetime loan that is usually made based on the value of the property. In this way, it is different from normal loans from banks and lending companies, as it isn’t based on the credit of the person buying the property. The property itself is used as collateral for the loan.

Private money loans have much shorter terms than traditional loans too and interest rates are higher. Most terms are between one and three years. Private money loans are risky – they should only be taken if the person has knowledge of the market in the area and more particularly the value of the property they are buying.

The main reason for getting a private money loan is to buy and flip a house. This way, both the lender and the buyer can make a profit. The buyer can get a bargain with homes that have been foreclosed on, or through a short sale. They carry out the work needed on the home and put it back on the market for a higher price, thus making them able to pay off the private money loan and hopefully take home some profit.

Why is it Primetime for Private Money Loans?

Private money loans can be used for any kind of short term financing. They are a great option when you don’t qualify for a normal loan and if you have equity in your property. If you can foresee a way out of your financial bind in the short term, then it can be a primetime to get money quickly.

Managing Director of Connecticut-based lender RCN Capital, Jeffrey Tesch, says that “business is better than ever” in the workforce housing segment.  More homes are now being bought up and flipped. He said that he expects his firm to loan around $500 million for real estate deals 2019.

Another reason why the private loan sector is booming is that companies want to diversify. They have assets but they don’t have hard cash. When they see an opportunity they want to jump on it quickly. Private money lenders don’t require borrowers to go through a lengthy process to apply, so the money can be received quicker, which is a serious advantage in a fast-moving world.

Private money lenders aren’t bound by the same regulations as banks and other traditional lending institutions. They draw up their own terms and the customer either agrees or goes elsewhere. This means that they can pour their money into investments that they believe in, and make a nice profit in the meantime.

Should I Get a Private Money Loan?

If you need an injection of cash for your business, then a private money loan may be a good option.  If you have spotted a property but you can’t fulfill traditional requirements, you could take advantage of a private money lender.

Most private money lenders won’t take on an investment that they don’t have faith in, even with the high-interest rates. Reputable private money lenders want to build relationships that are beneficial to both parties.

Resources:

https://www.attomdata.com/news/market-trends/foreclosures/midyear-2018-u-s-foreclosure-market-report/

https://www.bloomberg.com/news/articles/2019-06-12/high-interest-lenders-up-40-even-as-home-flipping-trend-weakens

 

 

How to Find a Hard Money Lender

How to Find a Hard Money Lender

There are several ways that you can locate a hard money lender that has a good reputation. One of the simplest ways to find a hard money lender is locally. You can find a lender local to your area is by searching online. Of course, there are many companies that will be listed in your search results. However, you will likely come across a larger list of hard money lender names as well. This is a good way to start the process of your search. By gathering a handful of lender names you can begin researching the individual lenders you may be interested in contacting. Once you start contacting different loan providers you can evaluate the information you have been given. It is important that you don’t just jump the gun and go without the first lender you find. Doing your research and thinking the process through is important for responsible real estate investing.

Find a Hard Money Lender Near You

If you are looking to find a hard money lender near you, it may take some hard work. One of the first things to do is to reach out to real estates agents in your local area. Many real estate agents near you can provide you with referrals to lenders they are familiar with. On top of this option, you can reach out to groups involved in real estate investment opportunities. Groups who take interest in this type of investment are likely to have lender names. People with personal or business relationships with lenders can definitely help you.

Some people try to stick to an online approach when finding a loan. If this is the case, you’ll want to find a hard money lender directory. Most directories will have lists of hard money lenders that are available in your area. Hard money lenders are typically private lenders that can help fund your flipping business. When you find one either in your state or city, they are usually financially ready to help you.

Local Club Meetings

Local investor club meetings are also a great way to find a good hard money lender. Most cities and states hold these meetings regularly. Locating one of these lender club meetings is how many investors connect with potential borrowers and network with the investors in the area. It’s always best practice to get your name and face out there. Networking with individuals who have the same goals and interests as you can only help you be more successful. On a rare occasion you won’t find any hard money lenders are the local meeting. However, if this happens you have a host of individuals in the meeting that are investors and can likely point you in the direction of a reputable lender. Real estate investors are very familiar with the practice and business of hard money lenders so it won’t be hard to get a few recommendations of lenders in your area. On the same note – professional individuals or brokers in real estate or conventional mortgage are often able to make a referral to a hard money lender who is highly experienced. Building a large network and leveraging that is an ideal way to get in contact with a recommended lender to support you.

National Lenders

Without doubt, there are always well-known national lenders that people turn to for loans. If you have little luck with local assistance or you are more interested in getting a loan from a larger lender, you’ll need to look into national online lenders. National Lenders offer commercial and residential investment loans. Although this could be the easiest option for some you need to research each individual lender before you actually contact them. Doing your research help you determine whether the lender can give you what you need or not. Each national lender specializes in something more or different than another. Some common national hard money lenders are Lima One Capital, Lending Home or Patch of Land. These types of hard money lenders are more aimed at providing loans for property renovation or flipping houses. If you are looking for commercial property investment loans, a national lender such as Finance of American Commercial may be a good option for you.

Be organized and professional

Once you have gathered your list of hard money lenders through recommendation or other avenues, start contacting them. if a private lender is going to provide you with lending assistance, they will have to believe that the deal you have is going to be profitable. If your proposal and deal is not up to par, a lender is not going to give you a hard money loan.

As stated, you’ll need to begin by finding a good deal. When you find a good deal, you can look for a hard money lender with confidence and hopefully get them to fund your proposal. However, without a deal that is actually good, the likeliness of you getting a hard money loan will be low. The nice thing about a hard money lender is that the process is flexible. Applying for a hard money loan is something that both an experienced as well as an inexperienced real estate investor can do. Another great benefit is that hard money lenders do not look at a person’s credit score. Many lenders will actually approve real estate loans to individuals who have low if not poor credit scores.

After Finding A Lender

After you find a hard money lender that you are going to request a loan from the process should be straight forward. It turns out the hard money loan process is known to be quick. One of the perks of hard money lenders is that the application to the underwriting and approval is done in a speedy fashion. Moreover, the disbursement of costs for renovation are simple and fast. Learning how to find a hard money lender can seem intimidating at first. However, if you stick to it and put yourself out there, you will achieve your desired outcome. Happy real estate investment opportunities!

Some Jargon To Know Regarding Hard Money Lending

If you are an investor and you want to start using hard money loans, you may feel like a fish out of water. It is very important that you research your options before choosing a hard money lender so that you get the best deal possible. During your research, you may come across a number of terms that you may not understand. The following looks at some of the most commonly used jargon in the industry.

1. Loan to Value

The loan to value ratio is something that is of importance in all types of loans.

The loan-to-value ratio (LTV ratio) is a lending risk assessment ratio that financial institutions and others lenders examine before approving a mortgage.

The higher the LTV, the greater the risk, meaning you may have to supply additional collateral.

2. Lien Position

If your investment fails and has to be liquidated, the lender wants to know where in the chain they are in terms of repayments. Ideally, they want the 1st lien position, which means that they have top priority. They may, however, agree to 2nd position as well.

3. Loan Parameters

The loan parameters are basically the acceptance criteria that the lender has put in place.

The factors used to determine whether or not to provide a loan to the borrower.

These parameters tend to be very different with hard money lenders than what they are with traditional financial institutions. Often, they will look at things such as your existing debts, your current credit score, and the type of collateral that you have to offer. Hard money lenders are private lenders, either individuals or groups of individuals, which means that they can set their own loan parameters as they see fit. Banks, by contrast, have virtually the same parameters across the board.

4. Bridge Loan

A bridge loan is a short term solution that covers the financial gap between two transactions. If you were to purchase a home and your old home hasn’t been sold yet, the bridge loan can cover those costs.

5. Rehab Loan

A rehab loan is an investment loan on properties in a state of disrepair. Generally speaking, traditional banks are not interested in providing rehab loans, which is why a hard money loan may be required. That is because private lenders are willing to look at the potential of a property, whereas traditional banks are only interested in what the property is currently worth. Rehab loans are heavily regulated if they are provided by the Federal Housing Administration (FHA).

The rules for an FHA 203(k) Rehab loan include restrictions on the type of property that can be rehabbed under this program, as well as requirements for the condition of properties that are eligible for the 203(k). Those restrictions include the number of units the property has–eligible homes may have one unit but no more than four, and the dwelling must have been completed for at least one year, according to FHA.gov.

6. Commercial Loans

These loans are used for equipment upgrades, new product lines, repairs, expansions, and so on. Banks generally don’t want to offer these because of the uncertainty of getting their money back, which is why private lenders often step in to fill the gap.

7. Construction Loans

These loans are offered to those who want to build a residential or commercial building. Banks are generally not interested in these properties because there is no proof of viability of the project. Hard money lenders, on the other hand, are willing to invest in these.

If you want to invest using private money, then understanding the above terms is very important because it will help you choose the most appropriate solution. Remember that hard money lenders want to make a profit, which means you must show them that you are an investment worth making and a risk worth taking.

loan

Why Use Hard Money Private Lenders?

So, you’ve seen a house that could use some work and you think that you could make something of it. The trouble is, you simply don’t have the cash on hand to buy it. What’s your first thought? See if you can get a loan. If that’s refused, what do you do then? For some people, they don’t even consider a traditional loan, they go straight to a hard money lender.

What is that exactly? It’s a non-traditional lender that can loan you the money with different terms and conditions than you would receive from a bank or normal credit institution. If this isn’t something that you’re familiar with, not to worry – you’ve come to the right place.

What is a Hard Money Private Lender?

A hard money private lender is someone who provides you with credit when you offer property as collateral. They are private investors, either individuals or groups, and they usually have plenty of experience in offering out these loans.

They don’t finance loans with money from deposits, which is how other traditional institutions do it, such as banks and other credit bureaus.

Hard money private lenders are business people and risk-takers, yes. However, they have private funds, which they use to provide quick financial loans. Due to the fact that it is private money, you can skip over most of the regulatory stuff that you’d have to go through if you applied for a conventional loan.

Why is this beneficial for them? Because they earn a lot from it. The loan terms are short, the interest rates are high and they have property as collateral should anything go wrong.

They clearly live by the words of Rich Dad, Poor Dad author, Robert Kiyosaki “As they say in the world of finance, ‘I’ll give you your price if you will give me my terms.'” It’s basically win-win for a hard money private lender.

However, most hard money private lenders like to build relationships and they often lend to the same people over and over.

Hard money lending is big business, with recent reports showing that there are 40% more private lenders now than there were just three years ago.

What do People Use a Hard Money Loan For?

A variety of things. As mentioned, it’s often to do with real estate. Real estate investors often lend to each other and they make big bucks using hard money loans. Here are the things that hard loans are most commonly used for:

House flipping

If you want to earn some money quickly, then one of the best ways to do it is by flipping a house. Real estate investors keep an eye on foreclosures or short sales, and when they need the cash, they simply skip the banks entirely and go straight to a hard money lender.

Development of Property

Smaller developers often use hard money loans when they have found a plot of land or old buildings to develop. In this case, it’s important that the developer either carries out the construction themselves or has a very close relationship with the construction team, as timelines need to be pretty quick in order to turn a profit and pay off the loan.

Personal loans

It’s not as common but some people do use hard money lenders to get access to cash quickly. They can take the loan against their property, but need to keep strict control of their finances so that they can pay off the loan. One way this can work is when homeowners to get a hard money loan to do some renovations to their home and then apply for traditional re-financing with their home revalued at a higher rate.

Why Should I Choose a Hard Money Private Loan?

The pros of using a hard money private lender are as follows:

* Avoid bank limitations

*Fewer requirements to fulfill – less paperwork overall

* Get cash much quicker than through traditional financing institutions

* Shorter term loan, so once you’ve made a profit you can pay off the loan and move on to your next investment.

Overall, as long as you are confident that you can pay off a hard money loan and have a plan in place to control your budget and finances, it can be a brilliant solution to get a hard money loan, especially if you are starting out as a real estate investor.

If you’re looking for reputable hard money private lenders near you, you can search here.

Sources:

https://www.bloomberg.com/news/articles/2019-06-12/high-interest-lenders-up-40-even-as-home-flipping-trend-weakens

http://www.quoteswise.com/robert-kiyosaki-quotes-6.html

New Hard Money Lender In Arizona

People in Arizona will be happy to hear that a new hard money lender is offering its services in the state. Barrett Financial is a very experienced mortgage broker, and this is the first time they have ventured into hard money lending in this state, something they have long been working towards.

We are hard money lenders in Arizona that are extremely trustworthy, efficient, and experienced. If you need hard money for your next commercial property acquisition, construction project, fix and flip, or buy and hold property in Phoenix let us work with you!

This lender is focusing specifically on those people who cannot meet the stringent application requirements of conventional financial institutions such as banks. By offering people in Arizona their new hard money programs, Barrett Financial hopes that they are able to play a role in getting more real estate projects off the grounds. They are interested in those projects that banks have said no to.

The lender is one of the best known brokers in Arizona, offering a wealth of different types of loan programs.

The right type of mortgage for you depends on many different factors. A 15-year fixed rate mortgage can save you many thousands of dollars in interest payments over the life of the loan, but your monthly payments will be higher. An adjustable rate mortgage may get you started with a lower monthly payment than a fixed rate mortgage, but your payments could get higher when the interest rate changes. The best way to find the “right” answer is to discuss your finances, your plans and financial prospects, and your preferences frankly with a mortgage professional.

Considering the company’s focus on offering such a variety of loan programs, it is perhaps unsurprising that they have now also ventured into hard money lending. The company has the necessary resources to ensure that any prospective borrowers can be matched to the best source to find the funds. They will focus in particular on people who are self-employed, as they understand that these individuals generally earn a solid income, even if their tax return shows a small net income.

At the same time, Barrett Financial wants to work with those whose income does not come from traditional employment, which makes it very difficult to qualify for any type of loan, including hard money loans. Barrett Financial understands the obstacle bank statements pose for these types of people, but also know where the solutions are.

The ability to qualify for an Arizona hard money loan depends on a range of different criteria. Some of those include the ability to provide a solid collateral, insurability, and credit history. Barrett Financial, however, believes that somebody who has a poor credit score does not have to be someone who is automatically turned down for financial products, particularly as they are related to business or real estate. This is a mentality shared across the board with all employees at Barrett Financial, and this enables them to offer all their clients the most suitable solutions.

The company’s headquarters can be found in Phoenix, AZ and they are a private, hard money funder. They have a wealth of experience in all areas of real estate, including bridge loans, fix and flip loans, refinancing, and more. They focus on ensuring that customers are efficiently and quickly provided with the financial solutions they need, working only with lenders who are trustworthy and safe. Barrett Financial is well-established in Phoenix and their venturing into hard money loans is something they have been preparing for, for some time now. The company’s goal is to make Arizona’s real estate market the strongest in the country.

Looking At The Facts And Myths Surrounding Hard Money Lending

When people want to borrow money in an easy, simplified way, then they may want to consider getting a loan from a hard money lender. People are starting to see the benefits of private loans, particularly with how quickly they can be arranged. Nevertheless, some skepticism is also in order.

Hard money loans can be quite risky. They are very different from bank loans, not in the least because they do not follow the Banking Regulation 2017.

Over the past several years, many regulatory initiatives in the United States derived from the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which was enacted in 2010 in response to the financial crisis of 2007-2009. Many provisions of the Dodd-Frank Act focus on the largest financial institutions due to their perceived role in causing the financial crisis and the perception of such institutions as ‘too-big-to-fail’. The new Trump Administration is expected to seek to modify or repeal certain aspects of the framework implemented under the Dodd-Frank Act.

That said, while it is certainly true that hard money lenders don’t have a standardized process and that they charge high interest rates, they also have some key advantages. This is why it is important for people to be aware of the myths and facts surrounding hard money loans, thereby providing them with an opportunity to make an informed decision.

MYTH: A Hard Money Loan Costs a Lot of Money

FACT: It is certainly true that a hard money loan comes with a hefty price tag. However, it also offers a fantastic opportunity for a high return on investment. Usually, banks and other financial institutions will only provide people with a very low loan-to-cost ratio.

The loan-to-cost (LTC) ratio is a metric used in commercial real estate construction used to compare the financing of a project as offered by a loan to the cost of building the project. The LTC ratio allows commercial real estate lenders to determine the risk of offering a construction loan. Similar to the LTC ratio, the loan-to-value (LTV) ratio compares the construction loan amount to the fair-market value of the project.

Indeed, the LTC is usually between 50% and 65% of the cost of the project. In other words, a developer has to be able to find between 35% and 50% of the funds required somewhere else. In commercial real estate in particular, this could mean millions of dollars.

In contrast, a hard money lender can offer an LTC of between 80% and 90%. This means that there is a far smaller gap to cover. It is true that the interest rates on a hard money loan are a lot more expensive. However, it is also a short term loan, which means that it is easier to obtain a quick return on investment.

Borrowing money is about doing the math. Borrowers must calculate the cost of the loan, which includes the total interest they will pay and the equity they must somehow raise themselves, potentially incurring more interest, and deduct this from the money they will eventually make when their development project is over. Because of the short time frame of a hard money loan and the fact that so much less equity will have to be raised, it is very common to see a hard money loan cost less overall than a traditional loan.

MYTH: You Lose a Lot of Control when You Take out a Hard Money Loan

FACT: It is common for those who want to take out a traditional loan to have to work together with partners in order to raise the additional equity required for the project. What this means is that the lender no longer invests in a piece of property, but rather in an LLC.

Simply put, an LLC is the least complex business structure. Unlike an s corp or c corp, the structure of an LLC is flexible. Starting an LLC also gives you the perk of pass-through taxes, limited liability (obviously), and legal protection for your personal assets.

However, bringing in a partner and forming an LLC often means having to give up partial or even full ownership to the partner.

A hard money lender invests not in an LLC but rather in a property. This means that the borrower remains as a complete owner.

MYTH: It Is Much Easier to Work with a Bank than with a Private Lender

FACT: Just because traditional lenders like banks have a standardized process, they are not necessarily easier to work with. In fact, hard money lenders are often far more flexible and their process is usually highly streamlined as well. If the project is a new development, then hard money loans are generally far more effective. This is because federal regulations make it difficult for traditional lenders to invest in construction.

The commercial real estate market continues to be highly volatile, which means higher reserves have to be held against a project. Additionally, banks must follow the rules and regulations set by the Federal Deposit Insurance Corp..

The Federal Deposit Insurance Corporation (FDIC) preserves and promotes public confidence in the U.S. financial system by insuring deposits in banks and thrift institutions for at least $250,000; by identifying, monitoring and addressing risks to the deposit insurance funds; and by limiting the effect on the economy and the financial system when a bank or thrift institution fails.

What this means is that the vast majority of construction investors will not have the 1099 income or consistent tax returns they need to qualify. If a loan application is approved, it will be highly conservative. Large banks are concerned about exposure and avoid construction loans as much as possible, preferring to work with customers they already have ties with.

A hard money loan, by contrast, doesn’t have to follow these regulations. While they can also be conservative, their processes are usually much easier to follow and their criteria easier to meet. Indeed, a hard money loan can close in as little as 30 days. Some hard money lenders have such a streamlined process, in fact, that they can have the funds available within 48 hours of receiving a complete application package.

How Can Hard Money Loan Help me with Real Estate Investment

How Can Hard Money Loan Help me with Real Estate Investment

A hard money loan can be a real game changer if you're hoping to get into real estate and expand your investment portfolio.

An alternative to traditional funding, hard money loans are asset-based. This means borrowers receive loans based on the value of their property. In a country where the real estate market is rising – there were 679,000 new single family homes sold in the first quarter of 2019 in the United States – many people want to cash in on this opportunity. In the last few months, the country's spending on private residential construction work surpassed an estimated $507,231 millions of dollars, and a considerable portion of that could be attributed to home renovators and flippers. Hard money loans offer a great chance to get in the housing market. This is true even if your borrowing history is less than perfect.

What are the Benefits of a Hard Money Loan?

Investing in real estate can be a fantastic and fulfilling endeavor. However, in order to do so you will need some capital. You can't invest in properties if you don't have the funds upfront. That's where hard money lending comes into play. There are many benefits associated with this form of funding. Essentially, hard money loans are awarded based on the value of the property you're purchasing, rather than your credit score and credit history. Generally speaking, people who have been rejected on loan applications through more traditional funding sources such as big banks and mortgage lenders may see success with hard money funding. The application process tends to be easier and more straightforward.

Other benefits of a hard money loan include a quick approval process. If you find a property that you're eager to invest in, you won't be waiting around long once you submit your application for hard money funding. You're much more likely to be approved for this loan compared to asking the bank or a mortgage lender for money. There's plenty of people out there just like you who have wanted to make some exciting real estate moves but have found themselves stuck financially. Hard money loans can be a solid solution that gives you the financial freedom to invest in the right real estate project for you.

Why do People Choose Hard Money Loans?

Last but certainly not least, another reason why so many people are enthusiastically turning to hard money loans is that there are less requirements and restrictions on this funding. You won't have to answer a million questions about your financial situation and your past credit mistakes. Instead, hard money lenders will be looking more closely at the property you plan to buy. The value of this property is very important. Hard money lenders just need to make sure that your investment makes sense. They will also want to know that you will be able to pay back the loan.

How Can You Get a Hard Money Loan?

Hard money loans are extremely helpful for those who want to get into real estate but may not have access to traditional forms of funding. Buying run-down properties and flipping them for a profit is thrilling and rewarding. This is especially true when you get your business blossoming with opportunities coming at you left and right. Whether you're just starting out in the real estate market, or you're a veteran who is ready to try something new, hard money lending could be for you. It's understandable that you may have some more questions, and luckily there are some fantastic hard money funding experts out there who would be happy to help.

In order to secure a hard money loan for your real estate investment, you should search for lenders in your area. Scheduling a meeting with these lenders is a good idea, as you can then have all your questions answered and get a better understanding of what you can expect with a hard money loan. You will also need to provide details on the property you wish to use the hard money loan for. What is the current value of the property and what work are you planning to do to the property to sell it for a profit in a few years time? By demonstrating your real estate plans, you'll be likely to receive approval for this hard money loan that could help you tremendously.

Who Offers Hard Money Loans?

There are some great hard money lenders who are trustworthy and fair and they offer an alternative avenue to funding. These are the types of funding companies that you should want to work with. As with anything, real estate is a huge investment, and it's important to make the best choice for you the first time around. It's likely that hard money loans are the ideal option to achieve your real estate ambitions.

What Else Should you Know?

As with any sort of financial agreement, you should do due diligence and research all your options before signing on the dotted line. While there are so many advantages associated with hard money funding, you also need to be aware of any possible drawbacks that could affect you.

This mainly revolves around interest rates, which are higher than traditional forms of funding. While a mortgage from the bank may offer interest rates somewhere in the range of 3-5%, with a hard money loan you'll be looking more so at interest rates around 8-11%. While these rates can of course vary depending on the lender, it's typical for borrowers to pay more interest on a hard money loan due to the conditions of funding. That being said, this won't matter too much if you stick to your plans of flipping the property and selling at a profit in a few years. Just remember that the interest rates will be higher, and this should factor into your financial planning. You'll also should be pretty sure that your plans for a profit will materialize, so that you end up in the black.

If you're ready to move forward with your real estate hopes and dreams, the next step is to contact a reputable hard money lender to get started on your application. Your next real estate investment could be much closer than you think!

Sources: https://www.huduser.gov/portal/ushmc/quarterly_commentary.html

https://www.census.gov/construction/c30/c30index.html?#