In the real estate market today, there are several ways to make money; one of them is by funding the hard money rehab loan. The conventional rehab loan is a real estate loan that will allow someone to by a property that is some what run down or a fixer upper, do the repairs and sell the home for more than the original cost, pay the rehab loan off and pocket the profit. This is referred to as a “flip”. Flipping of properties is now again becoming quite popular in this market. The hard money rehab loan comes into play when the person buying the home to be flipped is not in a position to qualify for a conventional rehab loan.
The hard money investor and the real estate flipper can build a quite close relationship doing business in the market today. The hard money lender is a perfect partner for a person who is good at both getting property at a bargain and then fixing it up. Both of these resourceful individuals can make a large sum of money on each investment. The rules of the transaction are basically, buy low and sell high.
The hard money lender will make sure of a couple of things to guarantee his investment. The first thing is to make sure that the real estate flipper will never pay more than 70% of the present value (sometimes this can be a little more because of the repaired value) of the property. This way, no matter what happens, the lender will get his money back. The second way the investor will make good on his money investment is in the fees for the loan. These fees can be 5% to 7% of the loan and will be in his pocket in a matter of a couple of months if things go correctly.
The person that is flipping the home will be making a hefty profit and be glad to pay the high fees on the hard money rehab loan. Just look at an estimate. If the home is worth 100K and he buys the home for 66k, including fees, and then sells the home 2 months later for 86k, he will make at least 17k clear after his added expenses for the rehab. Not a bad deal for 2 months work. You will begin to see more and more of the partnership of the flipper and the person making the hard money rehab loan.