Real Estate Assets Are Interesting Investments For Private Hard Money Lenders

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The standards for mortgage qualifications are becoming increasingly tight. While this makes life difficult for some, it also means there are new opportunities for private hard money lenders out there. Indeed, anyone who has some money could consider becoming involved in this, particularly because they are backed by the security of always having a buffer of between 25% and 30% since that is the maximum loan to value. Naturally, it is important to exert due diligence in this.

Crowdfunding and Self-Directed Investment Opportunities

Numerous experts agree that there are more and more opportunities out there for private hard money lenders. They are there to fill the gap left by the institutional lenders stepping away from mortgages as a result of the Dodd Frank Wall Street Reform and Consumer Protection Act.

The Dodd-Frank Wall Street Reform Act is a law that regulates the financial markets and protects consumers. Its eight components help prevent a repeat of the 2008 financial crisis.

Traditionally, private investors would opt for an IRA or 401k with a focus on real estate investments. Doing this conservatively means that no more than 20% of the retirement account is invested in this, which means another 80% can be invested in a range of other assets, including crowdfunding. The added benefit is that crowdfunding investing can be done outside of the retirement accounts as well. Indeed, again and again, this has been shown to be very secure.

Over the last several years, there has been extraordinary interest in private lending, as it has proven to be both profitable and—on a risk-adjusted basis with proper underwriting and due diligence—secure.

Property Valuations Are Conservative

One of the things that set private hard money lenders apart from banks is that they use a very different underwriting process. Traditional mortgages are limited to 90% for 30-year mortgages. Hard money lenders don’t focus on an applicant’s credit history, instead of looking at the value of the property. They then provide a loan for no more than two years. Additionally, hard money lenders offer much higher interest rates than traditional lenders. Lastly, hard money focuses strongly on distressed properties, rather than traditional homes.

The security of a hard money loan lies in the property itself. This means the valuation methods used have to be more conservative. The professional appraisal is important, but other tools are used as well. This is because appraisals are geared towards traditional mortgages, are based on the opinion of just one individual, are often wholly different to the agreed purchase price, and don’t consider the potential in distressed properties.

Hard money lenders take all the information available to them and make a decision based on that. They simply want to know whether they can get their money back and whether they can make a profit, even if this means taking the property back. This is also why they will only offer a 75% loan to value as a maximum, which gives them that protection. Additionally, they look at properties as if they are the fixer and flipper themselves.

With their singular focus on turning a quick profit, real estate investors are often regarded about as warmly as used-car salesmen. But experts say they’ve played a major role in spurring the housing market’s recovery. By targeting distressed properties, they’ve reduced neighborhood blight and increased the supply of homes in a region where inventory has been very tight.

Clearly, those who have money to invest, and who have at least a baseline of understanding of the housing market, should consider becoming hard money lenders. In so doing, they not only help themselves, but they also help assure economic recovery.

What is a Hard Money Investor

What is a Hard Money Investor?

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So, you and your spouse are ready to buy a new home. Around 32% of homeowners with less than stellar credit got turned down for a housing loan in 2017 alone, though. So, you’ve come up with another idea. You want to rent out another property that you own and put that money toward the house of your dreams. The problem is that the house needs a lot of work. Work that you can’t afford, either. You may want to enlist the help of a hard money investor.

By going through one of these investors, you’ll be able to get the loan that you need in a few days so you can start your renovation project. There are many pros and cons to these types of loans.

To help you weigh these pros and cons and decide if going through an investor would be right for you, here is a quick guide on everything that you need to know about them.

So What is a Hard Money Loan?

Let’s start from the beginning by telling you a little more about the loan. A hard money loan is a short term loan given to you to pay for real estate investments. The money that you’re given can vary depending on what you’re putting up for collateral, your credit history, and the value of the house you’re doing renovations on.

This money is given to you by a private investor rather than a bank. The interest is usually a little higher on hard money loans, and you’ve got a shorter time to pay it off. Even so, it can be worth it for you to use them as a means to fund your real estate projects.

Hard Money Loan Vs. Other Loans

Why not go through a soft loan rather than a hard one? If you wanted to go the soft money route you would have to jump a lot more hoops. First, you have to have a good credit history. This will be reported to your creditor as an inquiry. “This Inquiry will have a small but negative impact on your credit score.”

On top of having a good credit score, you also have to give up proof of income. If all this checks out then the bank might approve you for the loan.

Getting a hard money loan is a little bit easier than that. When you try to get one of these loans, you’ll be giving up property as collateral to the hard money investor. It’s because you’re giving up something physical as collateral that the investors are less picky about your financial status and credit history.

Why Go Through a Hard Money Investor?

The interest rate on hard money loans is higher than soft ones, and you don’t have as long to pay it off. So, why would you seek an investor? The answer is that the process is faster, there is more flexibility with it, and the approval rates are higher.

Speed

Soft money lenders go through your application with a fine-tooth comb. They take everything into account from your credit history to your bank statements. As you can imagine, this makes the process go much slower.

Again, in the case of hard money loans, you’re giving up something as collateral. The hard money investor doesn’t want to have to take the property that you give up, but they can if they have to. This means that they aren’t as thorough with looking over your application. You’ll know much faster if you got the loan or not.

Flexibility

Large banks and corporations have strict repayment schedules that you have to abide by. Hard money investors are a little more flexible than that. If you build a good relationship with the investor, they may be willing to talk things out. You’ll be able to get a repayment schedule that works for you.

Approval

The most important thing to a hard money investor is collateral. If they have to take your property back they can sell it fast, and they know it. They may look through your finances and credit history, but these things will mainly affect how much money you’ll get. It’s more likely that you’ll be approved for the loan than not.

Sources:

Maldonado, Camilo. “32% Of Applicants With Less Than Perfect Credit Were Denied Mortgages In 2017.” Forbes, Forbes Magazine, 27 July 2018, https://www.forbes.com/sites/camilomaldonado/2018/07/27/32-percent-of-applicants-without-perfect-credit-denied-in-2017/#26ea218a4b18

“What Exactly Happens When a Mortgage Lender Checks My Credit?” Consumer Financial Protection Bureau, https://www.consumerfinance.gov/ask-cfpb/what-exactly-happens-when-a-mortgage-lender-checks-my-credit-en-2005/.

 

 

What Are Hard Money Brokers?

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Hard money brokers

Are you in need of a hard money loan? People with low credit scores or aren’t able to give proof of income to traditional banks and credit unions aren’t able to get a loan. However, hard money loans might solve your financial problems. Learn more about how you can use hard money brokers to get the best loan possible from a lender.

What Are Hard Money Loans

Have you been trying to get a traditional loan? When you have gone through all other financial options, then a hard money loan could help you. It’s easier and faster to get one than traditional ones, which can be beneficial to those who need quick money. Traditional loans take too long and might not be an option for those with low credit.

People might become desperate to help finance their new house flipping business or their investment in real estate. Having the money to purchase a house on the market you want is crucial since it could easily be bought from another buyer.

How Hard Money Lenders Approve You

Getting approval from a hard money broker can be easier than traditional lenders. But you still have to put in the work and effort. You can get approval if the property you want them to invest in is worth it for them. You will have to put up some property as collateral to make the loan a possibility. Without it, you won’t be able to get a hard money loan.

Writing a thorough and organized proposal on how you will repay them will only help you get approval. A sloppy one might not get you far with some investors. Make sure you have an excellent plan for them not to say yes to. Having an exceptional property for them to make a profit off will be a further incentive to approve you for a loan.

However, you shouldn’t be too hasty when you get a hard money loan. According to the Financing Strategies For Real Estate Investments, if you aren’t able to repay the lender, they can “repossess the property because they have a first lien position and will handle it themselves.” This means they have the right to sell the property and take the sell for profit.

What Are Hard Money Brokers

Trying to figure out your first steps after deciding to get this loan might intimidate some. That’s why hard money brokers can come in handy for those who want to get the best deal. Hard money brokers are the middlemen who connect you with hard money lenders that’s right for you and your financial situation.

Hiring A Money Broker

Why do you need a money broker? As reported by the Financing Strategies For Real Estate Investments, hard money lenders will lend about 60-70% loan-to-value of the property you want to put up as collateral. You can’t get a loan that’s 100% worth the value of your home. These lenders need to make money out of their investment in real estate.

So, hiring a money broker can help you connect to lenders who are more likely to invest in the price range that satisfies you. You could search and find excellent money lenders online, but not all of them are willing to contact the borrower directly. Therefore, money brokers can help since they can be a middleman between you and the investors willing to invest in small or large real estates. Without them, you might not have access to investors that maintain a low profile or don’t want to be in contact with the borrower.

However, ask your broker how much they charge you for their services before hiring them. Paying them is another bill you have to think about when hard money loans become your last resort in getting the property you want.

If you are planning on getting a hard money loan, consider hiring a money broker. They can give you excellent connections to investors who match your loan goal or ones who will provide you with the best deal. It can save you more time by having the help of a professional who knows how to deal with busy investors. Research today to see which money brokers are right for you and your family. You can be one step closer to making your house flipping business a reality!

Source: http://ideaexchange.uakron.edu/cgi/viewcontent.cgi?article=1445&context=honors_research_projects

 

 

Profit from Hard Money Loans

Hard Money Profits

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Are you interested in making profit fairly quickly in the real estate market? Any good investor is always looking out for something that can provide a high return on investment with a quick turnaround, so probably, yes. A great way to invest in real estate is with hard money loans.

Hard money loans are a specific kind of very short-term loans. They are usually paid in around 12 to 24 months, sometimes even quicker. They often have loan fees ranging around 5% and the annual interest can be as big as 15%. That looks high, so why would you be interested in this kind of loan?

Because it can be highly profitable for you. With this kind of loan, you can invest in real estate quickly and without any hassle. This way, you can be able to get a high return on investment within a short timeframe.

How Does a Hard Money Loan Work?

A hard money loan is made when you borrow money to buy a property and repair it in order to sell it for a higher price. The main goal of this investment is to choose an old house in need of repairs, keep the costs low and the profits high.

The investor can borrow around 65 to 70% of the house’s “after repair value” (ARV) to get started. Let’s use an example. If you buy a house for $100,000 and its ARV is around $180,000 after it is repaired, you could get a loan for up to 70% of that value, that is $126,000.

With a loan fee of 5% and an interest of 15% a year, you would owe $132,300 plus the annual fees, which are paid monthly. The quicker you can repair the property and sell it, the more profit you can get.

If you are able to repair the house in two months and then take another two to sell it, you can pay the interest for only around four months. You can also try to keep the costs of renewal under the $26,000 you still have. This way, you do not even need to use any of your own money.

This way, even by paying the fees, you can still profit around $40,000 in only four months. If you could make three of these deals per year, you would profit around $120,000. Not a bad investment, right?

While you could argue that the interest rates are, indeed, very high, they are simply meaningless. What matters is only your profits.

Is a Hard Money Loan a Good Way to Profit?

If you have enough money to be sure that you are not risking too much, hard money loans are a great idea. You should be certain that you are not making a mistake, though. To be protected, you need to study the local real estate data carefully.

According to specialists Denise DiPasquale and William C. Wheaton, you have to look at the market via both micro and macro perspectives. From the micro perspective, they affirm that prices vary a lot across locations, even in the same city. Some places are more valuable than others. From the macro perspective, they affirm that the “broad economic forces” always affect the market, so the economy is a good indicator as well.

At the moment, the number of houses on sale is going up, so you have more choices (and prices will tend to go down). According to the latest report of the National Association of Realtors, the number of existing homes for sale is 2.5% higher than the last month.

This is the kind of data that you need to pay attention to determine if you making a good deal. Without viable research and a good idea of how costly the repairs will be, it is easy to make a meaningless profit with a hard money loan. This will only waste your time and money.

Many people get rich with hard money loans. If you want to be one of them, you have to work hard. Understanding the market and the costs involved is the key to success in this market. The chance is out there, but you have to be prepared to take it.

Sources:

https://notendur.hi.is/~ajonsson/kennsla2013/The_urban_land_market.pdf

https://www.nar.realtor/research-and-statistics/housing-statistics/existing-home-sales

 

 

Private Hard Money Lenders Are Seeking Funding Opportunities

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You need to know who to go to find money for your business. You believe in your business but now you need to find an interested money lender who believes in it too.  You know a bridge-loan or a hard money lender is the perfect solution for the influx of capital you need.

This article will provide you with information on the hard money lender criteria and process. If you want to know how lending and investors work, the below article will let you know. When you have questions about being an entrepreneur in this competitive business world, or just need a bridge loan for your business needs connect with us anytime.

Differences Between Private Lenders and Hard Money Lenders

Private money lenders are private investors. They can be difficult to find as most of them don’t advertise. Most of the time you find private money lenders through a professional network or peer. Private money lenders offer you more power to negotiate your loan terms for the deal. But attorneys are often involved unless you know your way around term sheets and contract obligations.

A hard money lender is defined as a short-term bridge loan funder. A good deal of hard money lending is used in real estate transactions, you may just not realize it. In hard money or bridge-loans there is higher risk for lenders so sometimes the loans have higher interest rates or payoffs. But these lenders also provide you with faster access to the capital you need. What’s more, they have a less stringent application process with flexible repayment schedules.

Right now is a great time to go after business funding. The economy continues to be healthy so there are more funding vehicles being created daily.  We are going to go over some secrets to finding interested funders who want to learn more about your business or funding needs.

The world used to be divided into private funders, hard money lenders, bank loan lenders, and loan sharks. All these groups had funding, and all were usually interested in speaking to you. Each group had its own reasons for wanting to lend you money. They also had their own respective criteria on what risks they would take.

There is no steadfast investment formula followed anymore by those who have money to fund projects, businesses, and dreams. If you are bold enough to have the vision with a concrete plan behind it, you may find a funder willing to listen.

Secrets to Finding Interested Money

There are bridge loan and hard money lenders interested in speaking to you today.  The truth is that bridge loan notes are used all the time by businesses. Many times, businesses today use hard money loans as their first infusion of dollars raised. Funders are doing it that way because it’s easier to negotiate the terms of a bridge loan than determine the value of a startup.

For a business or entity to run out of cash and need an influx of capital is not uncommon. “Founders have too much confidence in their business model, too little ability to forecast their burn rate, and too little willingness to give up equity.” Deepak Malhotra, Harvard Business Review. The businesses end result maybe it fails altogether.

Hard money lenders trust the relationship and put a premium on trust. If you want to find a funder interested in you and your product or service than a hard money lender is the place to go. But just like angel investments or bank loans there is a process and once you’ve settled on the terms of the loan, it’s important to sometimes remember you are creating a long-term partnership.  Honor the loan and the lender, and the lender will respect you back.

You never burn any financial bridge when you are in business for yourself. You never know when you may need funding or an influx of capital again. In the end, it doesn’t matter where you are getting your funding from, if the terms of the loan work for you. It is never too late to own your dream and find the interested money funder you need to make your dream a reality.  Reach out to us today, and we will help you find what road leads you to your future.

[1]  https://hbr.org/2013/05/how-to-negotiate-with-vcs

Becoming A Hard Money Lender

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A hard money lender will never run out of fashion in spite of all the innovations in banking. Once in a while, people run into financial woes that their banks cannot sort as soon as they may need or their credit score does not just allow them to enjoy bank lending. When this happens, a hard money lender becomes the best option to work with.

Find a Borrower & Evaluate the Deal

You must have a way of reaching out to clients for your business. If you have enough money, go into advertising. If not, reach out to your investors and business people for leads on a deal you can fund. You have an upper hand if you belong to a local Real Investment Club. You can start pitching here. Talk to the club manager to allow you access to the members.

Size up the deal. Consider the money required and the collateral in question. Evaluate whether it makes financial sense to you.

Establish Equity

Once you have discussed the collateral, determine the borrower’s equity in the property. A hard money lender should be looking for at least 30% of the equity as a rule. So the borrower should not borrow more than 70% of the property value after repair.

Assume the purchase price of the property is $100,000.

$10,000 in repairs

$185,000 after repair value

So to give the borrower $100

Loan for $100,000 = LTV (loan to value) of 67%

Assess Borrower’s Credit

While you have been chosen because the customer does not want to deal with formal bank credit red tape, this does not stop you from checking the borrower’s moral standing. Check the reputation when it comes to making business deals. Have they ever been declared bankrupt? Is the first private lending deal? Do they make timely payments?

Remember you are interested in the borrower’s reputation. As for credit history, you do not have to worry, you have the property.

Negotiate

Ask the borrower about their expectations. Hard money loans take a short period between 6 months or a year. Some borrowers though may opt for multi-year loans such as 3 or 5 years. In this case, ask them to refinance or pay off your note prompt.

Interest rates will vary based on the risks, market rates, and duration of the loan. Be conversant with your local rates. Consider offering a small discount until you become an established hard money lender.

At this point, the borrower should have handed over the necessary documents. Understand why they chose you. Get a list of repairs needed alongside an inspection report including a termite and oil tank inspection.

Get a professional appraiser to do After Repair Value appraisal. Inspect the property to see the repairs for yourself. Ask for repair bids. The borrower must get a title and home insurance with your names.

Close the Deal

If this is your first transaction, use an experienced lawyer. Go through the loan documents and wire the hard cash to an escrow agent. Ensure that the terms are well stipulated and all exemption clauses are captured.

There are a number of ways that you can use to service the loan. You can either opt for a simple-interest loan only or hire a servicing agent if it is a complex loan. “Do a thorough research on the method that allows you maximum returns from the lending or the property.”

Secret Success Tips for A Hard Money Lender

Hard money lending business was innovated for convenience and faster access to cash. The protection of the lender is in the property offered as collateral. It is really important to ensure the documentation is clean, the title is valid and insurance is valid. To succeed in the business, you need these tips to ensure you take advantage of every good deal that comes your way.

– Liquidity

– Valuation of Collateral

– Borrowers Credit Valuation

– Proper documentation to ensure availability and authenticity of collateral such as insurance and private lender insurance

– Take Care of your Personal Wealth: do not put up everything up for borrowing.

Succeeding in this business is easy with good planning. Be careful about valuation and documentation. Ensure you stay liquid and do not jeopardize personal wealth while at it. If you need help on how to navigate the business, talk to us.

Source

Mckenna, Francine. How can you monitor a borrower without financial statements? https://review.chicagobooth.edu/magazine/summer-2014/how-can-you-monitor-a-borrower-without-financial-statements