Monthly Archives: November 2012

What Are Hard Money Loans?

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Category : Hard Money Loans , Real Estate Loans

To get a hard money loan, you just need to have a good collateral or property, which is completely opposite to a traditional loan, where the lender is only interested in your particulars. That’s why; you are eligible of getting these loans even if you have a bad credit history or no job history.

This is the reason behind the success of hard money and fix and flip investing.

There are investors who get confused while looking for hard money loans because of the usage of terms like “hard money lender” and “private money lender” in the real estate investment business.

What I have learnt from my experiences is that a hard money lender is basically a professional lender, who is doing it for a living. They usually have higher interest rates and they also charge points, which is 1% of the total loan you are getting and you will have to pay that right after your loan is funded.

For example, a hard money lender can also charge you up to 20% interest and 4 points. Most of the lenders I have used, are the people referred to me by my friends or I have found them via internet.

On the other hand, most of the private money lenders are my friends or colleagues i.e. people who are within my social circle. They charge you less interest rates like 8 to 10% with no points.

If you are looking for good amount of money, hard money lenders could be the best choice. That’s why; they are the best options in case of mortgage as these lenders feel more secure that they will recover their money soon.

While doing my first deal in real estate, I used the services of a lender who charged me 15% interest rate and 3 points for 80% of the purchase price of the property including repairs. The rest of the funding was done by private money as I use them on second or third place.

So, basically I am using private money for 25% of my fix and flip needs.

This is basically what I know about private money versus hard money. There are some major differences but the main purpose is to have good connections and building up good relationships amongst each other to get complete funding for your deal.

I don’t use my own money for funding a deal, even though I can afford it because when there are two parties involved, the profit margin also increased and in that way, both of them can make money. It helps you in spreading wealth.

You Can Invest in Rental Property

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Category : Hard Money Loans

All that money lost in the stock market. Wow, no one thought it would or could happen so quickly. It did though, and millions of people lost millions of dollars, and they and you want it back.

Well, that just may be possible. An investment tool that originally came from the stock market is available to use in another area today, Real Estate. Property values have fallen in real estate from 8% to 30% depending on what part of the country you live in. This makes a real estate investment for the average investor more realistic than it has been in years.

I’m not talking about those so called real estate investment opportunities that you are asked to buy after midnight on TV. This is not for those looking for Zero Down Payment real estate deals, although there may be opportunities with foreclosures with values that have dropped by as much as 50% This requires that you actually have money to invest. It can be as little as 3-1/2% up to 30%. With the magic of leverage, your returns are multiplied and can help earn those stock market losses back sooner than you may realize.

Let’s say you want to start very modestly, and have $25,000 or $30,000 to invest. With your credit still intact you can purchase real estate previously valued at $150,000 or more as an investment. It could be a small commercial or rental property with an income stream. There are still lenders, even today, making conventional commercial loans.

Let’s use a $100,000 property as an example. You should be able to purchase the property with 20% down plus closing costs of about 5%. Now you control a $100,000 investment for about $25,000. If that $25,000 was in the bank and earning 5% interest, and banks are paying less than that as of this writing, you would earn $1,250 in a year. If that $100,000 real estate property appreciates only 3%, that’s 3% of the $100,000 value you control, you earn $3,000 on your $25,000 investment and that’s 12% return on your investment. That’s the magic of Leverage.

It gets even better, so let’s take a closer look. Now that you have bought the property you have to pay for it, usually by the month, and there are expenses. By choosing your property wisely in the beginning, the monthly income from rentals should pay the payments, taxes, insurance, and maintenance of the property and provide cash flow (additional profit). If it doesn’t, you are paying too much for the property and with the downturn of real estate values it should be easer to negotiate a price that will allow you to meet your goals.

If your personal situation permits it, with Government programs like VA and FHA, you should be able to increase your returns far beyond 12%. FHA financing is available for a four unit apartment building if the buyer is planning to live in one of the units. This allows you to leverage up to $280,000 in real estate for less than $10,000 down and allows you to get the seller to pay the closing costs for you up to 6%. It also allows the property to be financed up to 30 years, which gives you lower payments and more cash flow. Now let’s look at that return on investment. 3% of the $280,000 you control is $8,400 a year and an 84% return on your $10,000 investment.

Of course it’s a little more complicated than this, but not much. Leverage is a wonderful tool to use in investing today. Look into it, it could go a long way toward making up for your losses.

Hard Money Loan – How to Get It?

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Category : Hard Money Loans , Real Estate Loans

Believe it or not but getting hard money loans are very easy – IF you know where to find it. The easiest way of finding hard money lenders is through web.

It is important to realize that there are many companies, which claim to be a hard money lender but they aren’t in a true sense.

The reason behind getting hard money easily is because you don’t need to go through the conventional requirements of showing your credentials, such as job or credit history. Hard money loans are ONLY given on the basis of property you are buying.

That’s why, it is better to stay away from the places which will ask for a credit score requirement or bank statement before qualifying for the loan.

All the lenders will check your credit report or documents at some point of time but true lenders will only evaluate it to determine your interest rate, origination points and the duration of loan.

Another place to look for a hard money lender is your local REI (Real Estate Investment) club. You can talk to the other investors and find out whose services they are using.

OK, so I have given you some tips here about finding a hard money lender. Now, I would like to answer the main question.

Getting a loan is absolutely different from getting a traditional mortgage for your personal residence. You can only apply for loan after you have taken the property under contract that you are willing to buy.

True lenders work really fast and they can fund you within 7 business days as well but they can’t tell you the exact loan amount, until you show them the property.

As long as you haven’t faced bankruptcy in the last 24 months or you don’t have any current tax liens, you could easily get a hard money loan.

Few things which acts as a hurdle for those who submit their first application are:

1) The amount of loan you’ll get from a lender would be different from what you need.

Hard money lenders usually lend up to 70% of the estimated ARV (After Repair Value) for the property and this amount could be used for purchasing and rehabbing the property.

They will send independent property evaluators who will determine the ARV. A real lender will consider at least 10 comps before finalizing an ARV for the property you want to invest in.

This could be a bit different then what you have expected. If your purchase price and rehab costs are more than the 70% ARV, then you will have to bridge the difference yourself.

This is the biggest mistake which investors make. They think that if a lender is advertising that they will finance 100% of the purchase price and rehab costs, then it would work every time.

But that’s NOT the case. For getting 100% financing, you need to have your purchase price and rehab costs within 70% of ARV.

2) No proper planning for loan fees or origination points.

Hard money lenders are paid on loan points. There’s no other way out. They can’t fund you for points and it is usually of 00.

The borrower will have to pay for those points at the closing table if they want funding.

Even if a lender is advertising “no money down”, they are basically talking about the loan, which doesn’t include points.

Private Money Loans for Properties With Out-Of-State Owners

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Category : Hard Money Loans , Real Estate Loans

 If you really want to be successful as a real estate investor, the most important factor is finding good deals. If you can’t find a good deal, your chances of securing a private money loan is very less because this is extremely important in the eyes of real hard money lenders. If you want to find good deals, you should consider it as fishing. There are different ways of fishing. Either you can fish with one pole or you can fish by using a long line and a bunch of hooks.

The same goes for finding properties. There isn’t just one famous way of finding good properties. You should try a horde of different strategies. You will definitely need a wide range of hooks inside water at the same time. One of them will certainly hit at something useful. You shouldn’t use a single fishing pole but a long pole with several hooks. The ideas I’m going to discuss here will not guarantee you private money loans but they are good enough to get you financing from private money lenders.

Finding properties of out-of-state owners is one of the best ideas for making you successful as a real estate investor.

There are many people who have to move to a different city or country because of their careers or personal requirements. All these type of people have one thing in common. They are willing to sell their property as soon as possible, so they can move to their new house in a new place.

On the other hand, there are people who have bought a property as an investment. But later, they realized that it didn’t turn out to be as they’ve thought. Management of these kinds of properties from far is another problem

There is another type of out-of-state owner property that has been left by your parents or grandparents after their death. The kids or grandchildren who are living in other parts of the country would like to sell that property in a jiffy to distribute their shares

All these things makes a motivated seller who is willing to sell their properties as soon as possible. It is your job to find a motivated seller like this because this is one of the few places where you can make good profit margins. The lenders would also be able to see that and they’ll fund you private money loans easily.

Two things can help you here:

1. Finding a motivated seller

2. Finding properties that are in need of repairs.

You can also find a list of out-of-state owners online or at the county recorder office. You can purchase the list or you can look at the tax roll and check the mailing address of tax notice. If the mailing address is different from the address of the property, this means that the property belongs to out-of-state owner.

You should start a postcard or mail campaign to out-of-state owners, who have a property and who are living out of that particular state where the property is located. You should try to get in touch with them immediately, so they are not approached by any other buyer.

This could turn out to be fruitful for you because these motivated sellers are already waiting for different offers and these campaigns can help them in finding some really good deals.

All the out-of-state owner properties are considered to be good opportunities because they can be bought at fairly low prices as compared to the normal deals because the sellers want to unload them in a jiffy. These properties hold good opportunities for investors as well as private money lenders.

Private Money Lending – A Secret Strategy

Tags :

Category : Hard Money Loans , Real Estate Loans

This is the second installment of the series, where I would be answering some frequently asked questions related to investing in real estate.

We got an awesome response to our last post about hard loans and we thought of doing this as long as people find it useful enough…

Today, I am going to discuss another important question, which is the reason behind most of the problems for those who are willing to get into the real estate investing game.

The question is: how to find money to do fix and flips?

Every month, we usually get around 250-300 loan applications. Most of them have never got their loans closed because the borrower wasn’t well informed about the procedure of hard money lending.

That’s why; I want to discuss this in detail to give you a better understanding. ARV or after repair value is the basic factor on which hard money lenders fund money and they won’t lend you more than 70% of the ARV.

That is the total amount they will lend for both purchase price and rehab costs. Then on top of this, you need to have money to pay the points and fees on the loan at closing.

If you want to get 100% financing with purchase price and repair cost, you need to buy a property on lower than the estimated ARV.

If you are buying an awesome deal as well, then also the points and fees during closing should be 00 at minimum. Most of the new real estate investors don’t understand that they have to put some money out of their pockets initially and they won’t get the cash instantly.

Another situation is that where investors aren’t purchasing the property at lower ARV, which could help them in getting 100% financing and there is a gap between the loans they get and the price they have to pay for purchasing and rehabbing the house.

Investors need to understand one thing clearly that yes, there is 100% financing available for them but that doesn’t mean that they don’t have to put any money down.

There are investors who could say that they are broke and they can’t take any money out of their pockets.

There’s one solution for them and only few experienced investors know about it and that is the combination of hard money lending with private money lending.

This gap which needs to be filled by the investors isn’t too big and for that you can take the help of anyone from your social circle. They can help you in this investment and you can give them a percentage of the profits in return.

If you’ll do it properly, then you can do your fix and flip successfully and you’ll make enough profits to move towards your next real estate investment deal. At that time, you won’t need any private money lending because you’ll have enough money from your previous investment.

If you are unable to find private money lending within your friends circle, then you can look for these resources over the internet. You can find private investors via different websites or forums or social media portals.

You need to find someone who could fill that gap for you. But please make sure that you understand their terms and conditions, otherwise there are many who would try to trap you.

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