Did you know that you could borrow the funds to purchase and renovate your real estate investment property without going through a traditional bank? You can use other people’s money to leverage your real estate transactions and borrow based on the value of the property after it’s repaired!
There are several ways to borrow money other than going to a traditional mortgage lender—you can borrow from a hard money lender, a private investor or buy the property for your retirement planning through a self-directed IRA.
For now, let’s look at the hard money option. A hard money loan is a short-term, asset-based loan that is structured for real estate investing. Hard money lenders (and there are several reputable, local lenders in this city) will loan a real estate investor up to 75% of the value of the property after repairs, and you can use that loan to acquire the property and renovate it. The better the deal you can find, the less out of pocket expense you’ll incur.
Hard money loans usually have 6-12 month terms and the rates vary from 12-17% interest only. This may sound like a lot of interest, but if you renovate the property quickly, you can re-finance out of the loan into permanent financing quickly, or keep the house until you flip it to an end buyer for a profit. You’re only paying this high interest rate for a short time, and if you know your exit plan upfront, this is an excellent way to borrow money without having to use your own cash to get into the game.
Most good hard money lenders will help you get that permanent financing in place before you even buy the house, so you have a smooth exit strategy before you start. And because these are asset-based loans, your personal credit and cash reserve requirements are not nearly as strict as those required by a “big bank.” Plus, the hard money lenders don’t care about how much repair the property needs—as long as you buy it right they will loan you what it takes to buy and fix the house.
Also, a good hard money lender will appraise the property for you and guide you on the best way to rehab the house given that particular market and neighborhood. This is a great way for individuals to buy distressed properties and borrow the money to renovate it with little cash out of pocket.
All you have to do is find the right property, and the agents here at Big State Home Buyers can help you find the best possible deal, at any price point, and refer you to some of the best lenders in town. We have relationships with trustworthy and reliable lenders all around town.