New Hard Money Lender Launches In Beverly Hills

Almost everybody around the world would be familiar with the city in California known as Beverly Hills. It is home to Hollywood stars, and the rich and famous. Unsurprisingly, lots of interesting projects start here each year, and they require some significant financial investments in order to be completed. However, startup companies, in particular, find it difficult to get their foot in the door.

Wilshire Fund Opens in Beverly Hills

Fortunately, a new company has been launched, which provides hard money loans to those who want to finance a project in this area. Wilshire Fund, as the company is known, aims to provide an alternative way to finance real estate.

Wilshire Fund is a California-based private lender offering finance solutions for real estate borrowers seeking transaction loans and/or cash-out when traditional financing is not available. Our team of expert loan officers specializes in identifying the best rate and terms for loans tied to residential or commercial real estate assets – ranging in value from $200,000 to $15 million.

Background of Wilshire Fund

Although this particular element of the business is new, Wilshire Fund has already existed for some time. They were first established in 2005, serving all of the state of California. Their specialization has been in both commercial and residential loans. The company is also committed to excellence, hiring only those with the best experience in the field. In fact, although the team is small, they have a combined experience of over six decades in real estate consulting, loan brokerage, and commercial real estate.

What the company particularly prides itself on, is their level of service and personal attention. Compared to other financing options in the area, they offer much better rates. Because the cost of living in Beverly Hills is substantially higher than anywhere else in the state – and indeed the country – these are some very interesting proposals that could open up the market to more investors and individuals.

With the average cost of living in Beverly Hills, CA being 463, that puts it 239% higher than the average of California and 363% higher than our nation’s average. This simple outline of the cost of living index was formulated using prices of: goods and services (weighted 33%), housing prices (weighted 30%), groceries (weighted 13%), utilities (weighted 10%), transportation (weighted 9%), and health care (weighted 5%). Thus, goods/services, along with housing influences the majority of the cost of living index.

Wilshire Fund as Hard Money Lender

As a hard money lender, Wilshire Fund is committed to a personalized service and to make very quick decisions. They offer this commitment to all customers, regardless of the amount they want to borrow. That said, the average price of a home in Beverly Hills is $3,059,600, compared to the national average of $175,700, which does demonstrate that the loan amounts are likely to be substantial.

Some even believe that the prices of homes in Beverly Hills are so substantial that it has become an untouchable market. But for Wilshire Fund, it is about understanding the unique needs of every individual, and the unique offerings of each property. The company has a complex process in place to determine which loans are available, and they are happy to discuss these with anyone interested. In fact, they even offer an online loan application to further expedite the process.

The economic times continue to be incredibly stressful. In markets like Beverly Hills, it seems almost impossible for regular individuals to get so much as a foot in the door. Luckily, hard money lenders like Wilshire Fund aim to change this, thereby ensuring that the market remains not just competitive, but also fair. It is certainly a lender to watch, therefore, and one that could provide people with the opportunity to purchase a luxury property.

Proven Ways To Make Money In Real Estate

There is no industry in the world where more money has been made than in real estate. Yet, many people still worry about getting involved in it, mainly because they feel that they need to have a significant amount of capital. However, that isn’t true. Hard money loans are just one way in which you can enter this market with little to no capital to your name.

Success Stories

There are numerous success stories out there from people who had made it big in real estate with little to no money. For instance, there is Kent Clothier Sr.

Before his career in real estate, Kent started out in the supermarket industry in the Dallas area, managing a billion-dollar supermarket operation by the young age of 32. Kent brought his expertise in the grocery industry with him to Memphis and began American Wholesale Grocers in 1987. By 1995, he built the enterprise into a $50-million venture, which he sold in the late 1990s before pursuing his passion for real estate and establishing Memphis Invest.

Another example is Dean Graziosi, who has a trailer park background and now owns more than 400 properties. There are many others like these two and what brings them together is not that they had, or didn’t have, any money behind them. It is that they had the guts to try things and now have a fantastic amount of money and knowledge.

Real estate is no more or less difficult than making money online. It is simply about knowing what you do and don’t need. One thing you do not need, which may surprise you, is good credit. You also do not need significant capital. Yes, you will have to start with the lower priced properties at first, but this is where you can start to grow. Lastly, when you start, you also do not need to have any major assets to get financing. You simply need to get creative.

How to Make Money in Real Estate

There are two key ways to generate money in real estate. The first one is the passive method, which means you buy property and hold it, by purchasing turnkey properties.

If you leverage turnkey investment properties, then most everything is already done. All you would need to do is purchase the investment property, let the professionals manage it and collect your monthly cash flow checks while your tenants help you build equity.

Your second option is to earn an active income. The most common way to do that is by flipping properties, after you have added value through renovations or development deals. The big thing to learn about, however, is how you can get your foot in the door without having a huge amount of capital. To do that, there are multiple options available to you, including:

  • Lease options for seller financing
  • Trading jewelry, cars, and other fixed assets you have
  • Finding someone in a distressed situation and taking on their payments
  • Finding an investment partner
  • A loan
  • Peer to peer lending
  • Home equity lines of credit
  • Hard money lending

If you are hoping to earn an active income through real estate, which means you will buy and sell properties in a short period of time, then hard money lending is probably the most viable option, and the most preferred one.

Hard money loans, sometimes referred to as bridge loans, are short-term lending instruments that real estate investors can use to finance an investment project. This type of loan is often a tool for house flippers or real estate developers whose goal is to renovate or develop a property, then sell it for a profit. Hard money loans are issued by private lenders rather than mainstream financial institutions such as banks.

The reason why this works is because real estate is based on a simple cash flow principle. This means that, so long as you earn more than you spend, which means you are in positive cash flow, you are doing well. Real estate investments are some of the best investments around to generate continuous positive cash flow, which is why they are so popular, and why so many people have literally made millions of dollars doing so.

8 Key Strategies to Make Money in Real Estate

There are eight key strategies that you could consider if you want to make money in real estate. You could decide to focus on one strategy at a time, or you could combine them in ways that are suitable to you. You are likely to find that, as your incoming cash flow increases and your assets and savings increase, it will become easier to make money in multiple ways, thereby also increasing the speed with which you make more money in real estate. The eight strategies are:

1. Investing in long term residential rentals, which is a passive form of income with a lot of security: people always need somewhere to live.
2. Taking out lease options, which is a perfect starting point in which you lease a property while also having the option to buy. This is a good option if house prices are going up, because you will have set the purchase price before this increase.
3. Home renovation flipping, for which you either need quite a bit of cash behind you, or a good relationship with a hard money lender. In this case, you purchase cheap and distressed properties, fix them up, and sell them for a significant profit.
4. Contract flipping, which means that you find people who are willing to sell at a ridiculously low price, and bring them together with an investor looking to buy. This means that there is less risk for you, because you will never have to close escrow either. However, it is quite tricky to identify these properties.
5. Short sales, which means you find those who are willing to sell their property for far less than it is actually worth, and certainly less than the balance outstanding on their mortgage. This is generally accepted if a quick sale is needed to avoid foreclosure.
6. Purchasing vacation rentals, which is a great way of earning a passive income while at the same time having a piece of property that you can use yourself if you are on vacation. By working with a good property manager, there is not much you need to do to earn your income.
7. Through hard money lending, which you will probably only be able to do once you have been involved in this field for quite some time. When you first start out, you will look for hard money lenders to help you get on the ladder. But as you continue, and if you are successful, you can become a hard money lender yourself. There is a lot of profit to be made in these loans, and the risks are very low.
8. Investing in commercial real estate, which you will probably only be able to do once you are truly established.

Flipping Haunted Homes – The Next Big Money-Maker

The paranormal, ghost hunting and spiritual activities are very popular and fashionable right now. Yet, in all of this country, there is just one recognized haunted house. It is in Nyack, NY, and is legally recognized as being haunted.

“As a matter of law, the house is haunted.” This sentence in a ruling by the New York Supreme Court in July, 1991 generated international headlines for a real estate dispute surrounding the sale of 1 La Veta Place.

This is of significance because according to law people cannot just describe their house as being haunted when they want to. This, in turn, makes it an important issue for real estate professionals, who must make sure that they represent their properties properly.

Meanwhile, every year, thousands of people travel to Salem, MA, during Halloween in the hopes of being able to witness some spooky goings-on. There is a real appetite for the paranormal, such as for things that make noises in the dark. And that includes haunted properties.

Are Ghosts an Investment Risk – Or the Opposite?

Trulia has completed a piece of research that indicated that a haunting was not good for house prices.

We found that most Americans consider both deaths and hauntings when finding their next home. Millennial men are the exception, with some possibly dying to live in a haunted home, according to Trulia’s September survey, conducted online by Harris Poll among 2,098 U.S. adults ages 18 and older.

What this research showed more than anything, however, is that it presents a very interesting possibility for investors. On average, 43% of us will not buy a haunted property, rising to 50% among those who did not complete high school. What this means, in conjunction with the fact that there are legalities involved with whether or not a house is haunted, is that people have the opportunity to snap up properties at reduced prices because of suspected hauntings.

Fix and Flip – Seance and Flip?

It seems that there is a real market for haunted properties. Indeed, the haunted house in New York was sold and is now worth quite a bit money. Men who are between the ages of 18 and 34, meanwhile, are also a target demographic as they would like to purchase haunted properties. Meanwhile, those with a graduate degree and those over the age of 65 don’t care about ghosts, so they are also a purchase demographic.

But then, there are those properties that you could snap up because of the worry that there are ghosts, and hold a seance or other event to “evict” the ghosts, only to then sell it at a profit. This is perhaps the easiest, as well as quickest and cheapest, way to fix and flip a loan, and you are guaranteed that hard money lenders will be interested in it.

Paranormal Disclosures

Hard money lenders want to see a quick profit. They will happily lend you money to purchase a property if they believe you will be able to sell it within no more than three to five years and at a profit. This is easily achieved with a haunted home. However, you do have to be aware of the paranormal disclosure laws, which lead us back to the property in New York.

Essentially, some states require homeowners to disclose certain events. Those events include hauntings and also recent deaths, or any criminal activity that took place in the home. Hence, you need to make sure that you remain within the law, and that you find out how long after those events you no longer have to disclose them. Buy cheap because of a ghost, sell expensive because it is probably gone. It is the perfect way to flip real estate.

Hard Money Lenders Can Help, But You Do Have To Be Wary

A lot of people are interested in using hard money lenders if they want to get a quick and easy loan for a property, particularly if it is for an investment. While these types of lenders offer fantastic opportunities, particularly for fix and flip investors, it is also important to be aware of the pros and cons of hard money loans. Unfortunately, there have been situations in which people have lost thousands by turning to these lenders.

Hard Money Loans for Investment Properties Only and Not for Homes

Hard money lenders are only interested in the value of a property, not the individual’s debt to income ratio. It is also for this reason that these loans should not be used for family homes, but only for investment properties. Unfortunately, a lot of families see these loans as a way to get on the housing ladder, in the hopes of then being able to find a better loan by the time they have to pay it off. Because there is no guarantee that this will actually happen, you should never consider a hard money solution as an alternative to a regular mortgage.

Need to Avoid Loan Sharks

In fact, even those who use a hard money lender for an investment property must put measures in place to avoid loan sharks.

Loan sharks make their money by charging very high-interest rates, which are often against usury laws. Loan sharks might use threats of violence to encourage borrowers to repay the debt. All loan sharks are hard money lenders but, fortunately, not all hard money lenders are loan sharks.

Loan sharks are a significant concern for people looking for hard money loans. At the same time, con artists presenting as lenders are a concern as well. These con artists will convince people to pay them for an administrative service, and then don’t come up with any money in return. What these people prey on are people who have fallen on hard times and are desperate for money. This is not necessarily to buy a new property either. It could be, for instance, to renovate, to pay the mortgage, or to pay for any other bill. People who have bad credit often have financial difficulties anyway, which means that they are often in even greater need for some loan to tide them over or to pay for unexpected expenses.

Not all hard money loans are a bad idea, however. In fact, in a sense, a credit card is a hard money loan, and many of us have those. There are many different types of hard money loans out there, and they serve very important purposes. However, as a consumer, you must be responsible and consider what you are borrowing, why, and who from. This is about protecting yourself, something you should do with any kind of financial product. So what are some of the different types of genuine hard money loans that you may want to consider?

1. The Mortgage Refinancing Loan

When you refinance your mortgage, you essentially take out a second loan, which you use to improve the overall value of your property. This means that, for a short period of time, you will have a different loan to value ratio for your property, which is something that many lenders do not recommend. This, in turn, is exactly what people go to hard money lenders, because they use the money for a short period of time to complete the refurbishments of their property, after which they take out a new mortgage. It is important, however, to only do this if it will save money in the long run.

Refinancing can be a great financial move if it reduces your mortgage payment, shortens the term of your loan or helps you build equity more quickly. When used carefully, it can also be a valuable tool in getting debt under control. Before you refinance, take a careful look at your financial situation.

2. The Equity Loan

The second type of hard money loan is the equity loan.

A home equity loan – or HEL – is a loan in which a borrower uses the equity of their house as collateral. These loans allow you to borrow a large lump sum amount based on the value of your home, which is determined by an appraiser, and your current equity.

Equity loans, again, are very tricky financial constructions. It also means that you lose out on the equity in your property, at least for a certain period of time. Hence, you need to think about whether or not this really is the best idea. It is tempting to take one out just because it gives you cash in your pocket with which you can do what you want, but there are significant risks associated with it as well.

3. The Bridge Loan

Last but not least, there is the bridge or bridging loan, another complex financial construction.

Bridging loans are short-term finance typically used when there is a gap between the sale and completion dates in a chain. They are also used by people buying at auction, or those who plan to own a home only for a short time – for instance, if they are buying to renovate and then sell on.

These are the most common forms of hard money loans, and perhaps the safest as well. It is with a bridge loan that someone can purchase a property if they have not sold their own yet, for instance. They also are the perfect solution for fixers and flippers. A bridge loan is designed to be only held for a short period of time, which is precisely what hard money loans were intended to do.

We continue to live in difficult financial times, which means people look for various alternatives to find a way to get money together. While hard money loans enable people to do this, they have a specific purpose, which is to help people get money together for real estate. While it may be tempting to use them for other things, you should avoid this for your own protection.

Why Hard Money Lenders Are Not As Scary As They Appear

Many people think of hard money lenders as loan sharks, which are those types of people who will break your kneecap if you don’t pay on time. In reality, however, these lenders are legitimate individuals or organizations that help people get hold of home loans as quickly as possible. Very simply put, a hard money lender is a private rather than a traditional lender, meaning that this is not a bank.

Why Opt for Hard Money Loans

Many people wonder why anyone would go to a hard money lender instead of a bank. The answer to that is “convenience”. A hard money loan may have huge interest rates and run over short periods of time only, but they can be arranged within days and they are quite easy to get. This has made them popular with specific demographics.

Who Uses Hard Money Loans?

1. Fix and flippers love these loans, because they only hold properties for short periods of time, so a lengthy mortgage is not suitable to them.

If you add up all the time it takes to complete a fix and flip, you quickly arrive to a time frame that most people do not expect or plan for. Total completion time: 20 weeks (4 to 5 months).

2. Property builders, who use these loans to purchase land, build a property, and sell it. Again, this doesn’t take a lot of time.

3. Investors, such as real estate investors who see an amazing deal that simply cannot wait. Because a hard money loan can be organized in days, due to the fact that these lenders are essentially real estate investors themselves, it is the perfect solution for urgent deals.

4. People with bad credit who have a deposit ready. They may have had a recent default, foreclosure, or bankruptcy on their file. If they have cash and have spotted a property of value, then they may be considered for a hard money loan.

Bad Credit and Hard Money Loans

Technically, hard money loans were not designed for people who want to buy a primary residence. However, with so many people having bad credit or otherwise not meeting the standards set by regular lenders, they have become a viable option to consider. Essentially, people use them as a bridge loan, meaning that they take the hard money to buy their home, which is usually a two year loan. During this time, they rebuild their credit, meaning they will be able to apply for a conventional mortgage once the time is up.

Getting a Hard Money Loan

It is important that you check directories of hard money lenders so that you find the one that is right for you. This also means being aware of how these loans work. Usually, you will only be able to receive a loan for around six months to a year, although some hard money lenders now extend this to five years. You can also expect to pay substantial interest rates, usually between 12% and 21%. Furthermore, you usually have to pay for “points” or other types of fees.

Hard money lenders charge other fees besides the interest on the loan. The fees are a source of income for investors of hard money loans and it is important you understand the sources of income to negotiate the best rate and terms for your deal.

You also have to have a substantial deposit available yourself in order to qualify for a hard money loan. It is rare for lenders to even consider you unless you have at least 25% of the value in a deposit. The loan-to-value (LTV) rate is often as low as 60%, meaning you may have to save up for a 40% deposit.

2020 Loan Originations Through Anchor Loans Now Exceed $1 Billion

Anchor Loans is the largest hard money lender in this country for fix-and-flip investors. Once again, it has proven its worth by exceeding $1 billion in loan originations within one year, and the year is not even over yet! They have been able to do this for the second year running, allowing real estate investors to get the funds that they need. This is a new national record, as well as a new record for Anchor Loans itself.

No private money lender has been around longer, or loaned out more money to the fix and flip market than Anchor Loans. In 2016 we set the standard yet again, becoming the industry’s first to originate over $1 billion in loans in a single year.

Excellent Performance for the Past 19 Years

To date, the company has had a total volume of $5 billion. They have been in business for 19 years, surviving the Great Recession with ease. Over those 19 years, they have funded some 16,000 loans, setting themselves apart as one of the go-to companies for hard money loans. Their focus, meanwhile, is specifically on the fix and flip investment market.

It costs a lot of money to fix and flip houses. In addition to buying the home, fix and flippers need to pay for repairs, contractor fees, listing and broker fees, holding costs until you sell the home, and more. […] Hard Money Loan / Private Money Loan – Best for experienced or inexperienced flippers who need money quickly.

Anchor Loans as Industry Leader

Anchor Loans first surpassed the $5 in total volume in November 2019, which is an important record in itself. Nowhere in the industry have results like that been achieved before, which has really set Anchor Loans apart as the best in the country. Indeed, their president and CEO, Stephen Pollack, is incredibly proud of the achievements of the company. He believes it is a testament to the dedication, energy, and hard work of every staff member in the organization. Furthermore, he is proud of the fact that the company is now an industry leader.

Given the extremely fragmented nature of lenders to the fix-and-flip market, where substantial numbers of small local firms fund between $5 million and $50 million per year, our attainment of over $850 million in assets under management and $1 billion in loan origination volume in 2016 is a significant achievement for our industry.

There are numerous reasons why Anchor is such a standout company. Their proprietary Fintech platform is one of those reasons, as is their excellent relationships and their overall experience. No other lenders have been able to evaluate, underwrite, and fund their applications as quickly as what this company can. In fact, most of their clients see payments in as little as between three and 10 business days. This is why the company is so preferred across the nation, even outside of California, where they are headquartered.

Anchor Loans has positioned itself as the go-to intermediary between lenders and investors. They help them create opportunities that benefit everybody who is involved. They specialize particularly on rehab properties, as they believe these properties help to improve neighborhoods in particular and local economies as a whole. The company spends a great deal of time, effort, and money on anticipating and understanding clients’ needs, thereby ensuring that they can provide the most reliable funding in the quickest way possible. This strategy has enabled them to build long term relationships based on honesty and trust. More and more, the company is able to enter other types of markets as well, where they also quickly become the recognized expert. 2020 has been an excellent year and they expect 2021 to bring more of the same.

California’s Barrett Financial Group Now Offers Hard Money Loans

In California, both the commercial and residential real estate markets are booming. As a result, people are looking for new methods to finance real estate purchases. It has recently been announced that Barrett Financial Group has developed a number of hard money loans for a range of different types of properties.

Extremely trustworthy, reliable, fast and experienced hard money lenders in California. We provide local hard money for your next new construction project, commercial property acquisition, fix and flip, rehab or buy and hold. Give us a call today to submit your request for your next hard money loan.

Barrett Financial Group will be offering hard money loans for non-owner occupied and residential occupied properties, rehab loans, fix and flips, trustee sales, short sales, cash out refinances, REO finances, commercial loans, business investment properties, land loans, and construction loans. These products will also be available across the state, in all of its major markets.

Barrett Financial Group is a private funder that has many years of experience in every element of real estate lending. This ranges from fix and flip loans to refinancing to bridge loans.

Bridge loans are temporary loans that bridge the gap between the sales price of a new home and a home buyer’s new mortgage, in the event the buyer’s home has not yet sold. The bridge loan is secured to the buyer’s existing home. The funds from the bridge loan are then used as a down payment for the move-up home.

The group focuses strongly on the needs of customers, ensuring that they are efficiently and rapidly provided with the money they need for their real estate projects. Of particular importance is that Barrett Financial Group is very well-known and trusted in the industry.

Barrett Financial Group is outstanding. I have used Trevor and his team twice in the last two years. They are fast, friendly and focused on getting you a great loan/rate. Each time I have found Trevor to be very attentive, he’s always available, approachable and someone you can trust. I highly recommend Barrett Financial.

The organization has built its reputation in Phoenix, AZ, where their hard money lending programs have long been established. For a long time, the company has wanted to expand into California, particularly since they have experienced significant growth over the past three years. The goal for the organization is to assist people who have ambitious real estate projects, ensuring they can turn those into realities. The group works in partnership with a number of highly reputable partners, and they always look for other investment sources to join them.

Naturally, the organization does have acceptance criteria for those who want to apply for a hard money loan. That said, they have numerous criteria that people could fall back on, making their acceptance rate substantially higher than that of many other loans of their kind. The criteria include the ability to provide property collateral, insurability, and credit history. However, as it is a hard money loan, the latter criteria is of the least importance. Indeed, traditional lenders are failing borrowers by placing so much importance on credit score alone.

Traditional lenders provide funding for the majority of financed real estate transactions out there. They loan up to 80% of the home’s purchase price, and with certain types of loans, well over 90%. When it comes to hard money lenders, however, they follow different criteria for underwriting loans. Sure, they do take credit score into consideration, but they also look at a number of other factors.

Essentially, the Barrett Financial Group believes that if people have a poor credit score, the should not be excluded from receiving financing or loans, particularly for businesses or real estate purposes. This is a mentality that they have instilled in all specialists that work for them. Together, they ensure that clients and customers are able to build their own knowledge and find the best loan programs for their customers.

California has welcomed the news that Barrett Financial Group will be offering these loans, not in the least because there is now a flourishing fix and flip market.

California’s real estate markets have performed impressively in 2016. Home sales in most markets are robust and home selling prices continue to rise. California’s performance shows the resiliency of its huge economy, which has regained over 2.2 million jobs since 2010, which more than replaces the 1.3 million jobs lost during the Great Recession. Tight housing inventories, strong buyer demand, and appreciating home prices make California an attractive market for fix-and-flip investing. Here is a closer look at California markets that offer outstanding investment opportunities.

Fix and flip properties are notoriously difficult to receive a normal mortgage on, simply because the intention is to only own them for a short period of time. Most traditional mortgage lenders will only provide loans for at least ten years. With great difficulty, people may be able to find a five-year mortgage, but the early repayment penalties are very high on these. Hard money loans, by contrast, are designed to only be in place for a short period of time, usually for no more than two years, which makes them ideal for fix and flip properties.

Barrett Financial Group brings with it substantial years of experience. They are a trusted partner both for those looking for funding opportunities and loans for fix and flip or other real estate projects, but equally for those who have investments to make and want to ensure that this is managed the right way. It is expected, therefore, that the group will do exceptionally well in this state, particularly if their success in Arizona is anything to go by. The overall impact this will have on the real estate market in California will also be very interesting to keep track up, as it could potentially give more people the opportunity to fix and flip and, eventually, to invest in and become landlords or property managers, to name but a few.

Getting a Hard Money Loan with a Bad Credit Standing

One of the questions people often ask about hard money lending is whether or not it is possible to get such a loan if the applicant has bad credit. Credit standing certainly does play a role in determining whether or not someone can be approved for such a loan, but it is certainly not the only thing, nor is it the thing that matters most to lenders. Instead, a hard money loan is a type of investment, and the providers of these loans are interested in various other issues first.

Traditional Lenders Continue to Fail the Market

Almost all real estate transactions are funded by traditional lenders. Those will always need a down payment, usually of around 20%.

The amount of minimum down payment required will depend on the type of loan that you choose. Each mortgage loan type carries its own guidelines. Gone are the days of 80 / 20 combo loans and liar loans, also known as stated income loans. Today, underwriters closely scrutinize a borrower’s ability to repay the loan. They don’t want borrowers to overextend themselves and end up in foreclosure or a short sale down the road.

That being said, there are numerous other loan constructions out there. VA mortgages, for instance, are available for veterans and no deposit is required at all. However, if an investor wants to purchase a property and get a mortgage for this, they will face three significant problems first:

  1. A traditional lender looks solely at how much a property is being sold for, which is often not its actual value.
  2. A traditional lender will not agree to provide a mortgage for properties that are in disrepair, as they would need to invest in improvements should they decide to liquidate the property.
  3. A traditional lender places the focus on the credit score of the applicant. This means that if someone has perfect credit, and happens to come across an undervalued property that is also in perfect condition, he or she will be able to flip it with ease. In reality, however, finding that applicant and that property is like finding a needle in a haystack.

The housing bubble collapse of 2008 clearly still has repercussions.

Investors and consumers are likely to live with the repercussions of the financial crisis for years to come. In many countries, including the U.S., consumers remain heavily leveraged and many homeowners are “underwater,” owing more than their homes are worth. As consumers continue to deleverage and repair their finances, their purchasing patterns may be permanently altered.

Acceptance Criteria for Hard Money Loans

Hard money lenders are completely different from traditional lenders. They have their own criteria that will determine whether or not they agree to underwrite a loan. One of those criteria is the credit score, but that is certainly not the only one, nor is it the deciding factor. Rather, hard money lenders are interested in things such as:

  1. How much a property will be worth after it has been repaired.
  2.  Whether the applicant already has experience in investing in real estate.
  3. Whether the applicant is happy to invest money into the property as well.

Naturally, someone with good credit will be more likely to be accepted for a hard money loan. However, someone with bad credit is not automatically dismissed as a possibility either. For a hard money lender, what matters is the bigger picture, and not a singular metric image, which is what traditional lenders tend to look for.

Tips for Getting Approved for a Hard Money Loan If You Have Bad Credit

If you have bad credit, it is important that you think of ways to increase your chances of being approved for your hard money loans. There are three key things that you should focus on:

1. Make sure you have been fully thorough in your due diligence. The greatest priority for the hard money lenders, is that there is an investment opportunity. You are their investment, so you need to make sure that you have a proposition that sells yourself. This means performing due diligence right from the start.

The due diligence period in a real estate means embarking on the necessary steps to perform calculations, review documents, research the company and essentially do your homework for the investment BEFORE you actually make the commitment.

You need to be able to show, in your proposition, that you have covered every angle. This also means being able to explain each element to the lender.

2. Make sure that you can explain why you have bad credit. Credit history is important to a certain degree, but lenders are far more understanding of the fact that things can go wrong in your personal finances. If there are any extenuating circumstances that caused you to have these problems, and you can explain that there is no reason for those problems to return, then it is likely that the lender will be very lenient and understanding.

3. Make sure that you give the lender peace of mind. Hard money lenders are private investors so you need to approach them in that manner, showing them that you are serious. Contribute as much money as you possible can yourself, have an excellent exit strategy in place, demonstrate your ability to make the necessary monthly payments and the final payment, and so on.

Regardless of your credit score, the above three steps should help you to have a greater chance at getting approved for a hard money loan. What these lenders want to see is that their money will be returned to them, with interest. That means having a solid, well-researched proposition in place.

As you can see, it is possible to receive a hard money loan even if you have bad credit. This does not mean that your credit score doesn’t matter, but rather that it doesn’t matter as much as what it does to a traditional lender. You are far more likely to be able to receive a hard money loan if you have a solid investment proposition in place that is viable and likely to succeed, regardless of your credit history.

How Successful Builders Aren’t Stopped By Lending Limitations

The Great Recession signified death for many businesses, and particularly the construction industry. Very few survived it, in fact. Those that did survive have a solid footing on the market today, but they are few and far between. The vast majority of construction companies continue to struggle. One of the reasons for this is that, although there is more credit available and the underwriting process is easier construction financing, or acquisition, development, and construction (AD&C) loans, are still hard to get.

The Basel III standards impose increased capital requirements on banks for acquisition, development and construction (ADC) loans for commercial real estate projects. These commercial construction loans are now designated as “high-volatility commercial real estate” (HVCRE) loans, and banks are required to assign these a “risk weight” of 150 percent, compared to other business loans, for purposes of calculating the capital they must hold against these riskier loans.

What this means in simple terms, is that new developers don’t even have to bother asking for a loan through a community bank. Indeed, this was a key area of concern for 2018, something picked up on by the Federal Deposit Insurance Corporation (FDIC) and the NAHB, which has observed a dramatic slow down in construction lending. This doesn’t mean that lending is no longer happening, but rather that it continues to be very difficult, despite being in a growth cycle.

For builders, these are confusing times. On the one hand, demand for new properties is up, but creating supply is impossible through traditional means. This also highlights the importance of finding an alternative.

Why Community Banks Won’t Lend

Traditionally, community banks were fantastic sources for AD&C loans, because of the fact that they focused on the local market. Unfortunately, ever since the Great Recession, the risk has simply been too big for them. In fact, statistics show that small banks were hit the hardest.

The recession was especially unkind to small community banks. About 85 percent of banks that failed 2008-2011 were considered small, with assets below $1 billion. Smaller banks tend to have a larger portfolio of small business loans, therefore increased risk. But smaller banks also tend to get involved in local community development and philanthropy.

Bankers haven’t forgotten the Great Recession, and neither have developers. People still prefer to be cautious, despite the fact that, for nine years, a growth cycle has been experienced. The economy may be doing well but people feel they are on tenterhooks and expect another bubble to burst. Construction, in particular, is always very risky, with a lot of failures and defaults regularly noted because resources can no longer be found. Banks do not yet have the security themselves that enable them to mitigate this risk.

Increased Scrutiny

There is a strong sense of risk aversion and one way in which that is mitigated is through increased scrutiny. Different forms of lending have been observed, including an increase in loans for single families. At present, community banks aim to have no more than 35% exposure to each of the different asset classes and this has proven to be a good strategy.

Low interest rates coupled with an improving U.S. economy have stimulated CRE markets nationwide, resulting in strong price increases and high valuations. At the same time, the commercial mortgage-backed securities (CMBS) market has not been a huge source of competition for banks. These factors, combined with historically benign asset quality performance, have promoted relatively strong growth for CRE lending, most prominently among regional and community banks.

It is also believed that, with the appointment of Joseph Otting to the Office of the Comptroller of the Currency, which happened in November 2017, regulatory oversight is going to get better. Indeed, banking partners agree that there will be a loosening of regulations, which could spell benefits at local levels. While this is a fantastic development, it doesn’t resolve the fact that, in the here and now, banks aren’t lending and commercial real estate investors and developers still need funds.

The Solution

In response to the tight regulations of banks, and particularly of community banks, investors and developers are turning to private lenders instead. Hard money loans are reasonably easy to get, particularly for projects that have a strong chance of success. They are high risk, but this risk is mitigated by high-interest rates and short loan terms. As such, hard money lenders can ensure that they get their money back if nothing else.

Money is business. Banks may provide a financial service but, at the end of the day, their goal is to make more money. They do so cautiously, in part because they build lengthy lending relationships with their clients. Private lenders, meanwhile, also simply want to make more money. But they do so boldly, working with borrowers for short periods of time. They are two opposite sides of the spectrum, in other words.

Construction loans, in particular, are also highly complex. This is another thing that banks are resistant to. They would prefer something that is easy to understand, easy to underwrite, and easy to work on. Hard money lenders, by contrast, are visionaries. They don’t mind working over complex figures and other difficulties, because they can see what the potential in that project is, and what the end result is likely to be. They are realistic, in as such that they won’t lend on a project that they believe has no chance of success, but they also don’t mind taking risks, sometimes very significant ones.

Today, therefore, there are two classes of successful construction companies. The first class is the one that was around before the Great Recession and that continued to operate through it, never giving up and never having to close its doors. Those are the ones who have the biggest chance of going to a community bank and getting approved for a loan. The vast majority of construction companies, however, are new ones or have re-opened after the Great Recession was over. For them, the banks aren’t open yet, but hard money lenders are.

Could Banks Start Offering Safer Payday Loans?

Hard money lending is highly controversial. While it certainly has its place in the world of real estate investing, one form of it has received a bad reputation, which is that of payday loans. These loans attract everyday individuals stuck in a financial conundrum, but then trap them in an increasingly deep hole of debt. Now, it seems that a new system will allow banks to offer short term loans, and to do so in a way that is much safer for the average American. But is that even possible?

High-Risk Hard Money Lending

What attracts people to payday loans is that they are for low amounts and very short term. While they have interest rates of 300% or above, the fact that they are short term means that people effectively only pay around $60 in interest. People know they are dangerous, yet continue to apply for them.

People use payday loans to avoid borrowing from family and friends, and to avoid cutting back further on expenses. But they often end up doing those things anyway to pay back the loan.

The problem with payday loans is that most people simply do not have the ability to repay them, which means they roll them over instead, paying only the fees. A recent report by the Pew Charitable Trusts showed that, on a $375 loan, the average paid in fees is $520. Suggestions have been made to resolve this, including:

  • Allowing payday loans to be turned into installment loans instead
  • Limiting how much the borrowers have to repay to 5% of their monthly earnings

According to the Pew Charitable Trusts, doing so could save consumers around $10 billion per year.

A Better Solution

To help people avoid debt traps, the Consumer Financial Protection Bureau has put new underwriting requirements in place.

The rule generally requires that, before making such a loan, a lender must reasonably determine that the consumer has the ability to repay the loan. The Bureau has exempted certain short-term loans from the ability-to-repay determination prescribed in the rule if they are made with certain consumer protections.

What is perhaps more interesting is that, on the very same day, the Office of Comptroller of the Currency rescinded their rulings that made it all but impossible for banks to offer small-dollar loans.

The final rule regarding short-term, small-dollar loans submitted to the Federal Register by the Consumer Financial Protection Bureau necessitates revisiting the OCC guidance.

What this effectively means is that people can now once again turn to their banks in order to apply for small loans, and they are likely to get them. However, this doesn’t resolve the issue at hand, which is that people simply do not have enough savings to meet financial emergencies. Indeed, research has shown that 44% of people in this country would not be able to raise $400 in case of an emergency.

Not just that, but there will always be a place for hard money lenders, because of the role they play in real estate purchases. Because these lenders are private lenders, it is at their discretion to determine who they loan to, and under what circumstances. And considering that, despite the October regulations, the demand for residential hard money lenders continues to rise, and it seems that there will always be a place for them. Perhaps, it is time for a reclassification that no longer sees a payday lender as a hard money lender. In so doing, the industry could be more fairly regulated, while at the same time protecting the average American from the predatory practices of the payday lender.