Category Archives: Real Estate Loans

A bridge is something, which connects two different corners and in this way helps you to overcome any difficulty in an easy and timely manner. For example, if there is huge river between two roads, then a bridge could help you in crossing that river within a short span of time.
Similarly, private or hard money also helps the investor to go from one corner to another, with the help of hard money loans.
So, the basic purpose of a bridge is to help you cross the distance as fast as possible i.e. it is short term and the people who uses that bridge already know their destination and that’s why, they can decide what should be their exit strategy.
The same holds true for private money or hard money as this is a kind of financing, which is for a short period of time and where the borrower knows their exit strategy. So, hard money financing is basically working as a bridge between you and your destination i.e. the property.
The ideal situation to understand this scenario is that you have a property in hand, which is quite good but it is in a foreclosure situation and the home-owner needs cash straightaway.
On the other hand, you are a home buyer, who is always looking for a good deal and you are willing to buy that piece of real estate but you need financing.
This is the place where hard money bridge loans can come to rescue you and the home owner. You can apply for loan and can buy that property.
Now, you can apply for loan via traditional lenders as well but it will take 2-3 months to give you a loan and they will ask you to fill several documentation. Within that period of time, there is a chance that you will lose that deal because if the home-owner is looking for quick cash, then he would not like to wait for 60-90 days.
In that scenario, there couldn’t be a better option than going for hard money bridge loans because it’s a short term loan and can be funded to you within few days.
You just need to make sure what’s your exit strategy is and when you would be able to return that loan. Another important aspect to get private money or hard money is to have a good equity position, which means that your loan application is based upon good collateral.
If you will compare bridge loans with the traditional lending, you will know the difference.
One of our clients told me his story of getting financing from a bank. Although, he had money in his bank account but he wanted to keep it as a flush fund.
So, he went to the bank and applied for financing on a property. But they wanted to know each and everything about him. His job, his credit history, his tax history and they asked him to provide documentation for all these things.
Eventually, the bank took months to give him financing and he was thinking that whether it was even worth going to the bank or not.
We need to understand that in this era of credit crunch, banks are also in a very difficult situation. They can’t lend you money easily because they have to follow strict rules and regulations.
On the other hand, private money lenders are held privately and they don’t follow any particular guidelines, so they can lend you money according to their own terms and conditions.
So, what he decided is that whenever he needs some quick cash, he will never go to the banks or conventional lenders because their processes are quite laborious and if he will wait for them to give him financing, then he will lose the property as good deals aren’t there for long.
That is why, a borrower would prefer to have bridge financing because they are really easy. They don’t care whether you have a poor credit history or you have recently lost your job.
If you want to get hard money bridge loans, then the only requirement is to have good equity. That’s it. The lenders will send independent evaluators to draw comparables and based upon those reports, bridge lenders will fund you a loan, which would be a short term loan for 6 months max.
Being an investor, one should understand that private money or hard money is equity driven and they are lending based upon the asset i.e. the property and nothing else.

For understanding what I meant by a good property, I would like to introduce some terminologies:
1. After Repair Value or ARV
This tells you the worth of a property after it has been rehabbed.
2. Highest Best Use or HBU
This term is basically used for commercial properties, which means that what’s the highest to best use of that particular property.
HBU is also used for residential properties, where after evaluating a property; you can decide what would be the highest to best use of your money.
For example, after evaluating a property you decide that you can only spend ,000 on repairs instead of ,000 as you’ve thought because the total worth of the property after repairs would only be 0,000 max, which is going to be the highest to best use of that property.
But to sell the house, it is important that you should realize few things. If the house has something, which is missing like a driveway, then you will have to build a driveway because other houses in the neighborhood have a driveway.
But if you would like to have an edge over others, then you might need to do something extra like modernizing the kitchen by putting granite countertops or nice cabinets or you can do some extra work in bathrooms.
It is advisable to look around in the neighborhood at the active and sold homes and see what are the basic features in these homes.
You will definitely need to have all these features and if you want to have an edge over the others, then you can do something extra but don’t overdo it. This may help you to get competitive prices or not but it would always be better to have something extra.
3. Adjusted after repair value or AARV
AARV is the value, which you will get after subtracting the cost of repairs from the worth of a property after it has been rehabbed.
For example, if the property is worth of 0,000 after it has been repaired and the repair cost was ,000, then AARV will be 0,000.
The question, which arises here, is the loan amount i.e. how much loan you can get on a property like this from hard money lenders.
For that, you will have to do some calculations. Your AARV is 0,000 and above that you have different other costs like real estate agent fees, closing fee, title fees etc. This will cost you around 10%.
Then you will have interest fees for hard money loans and a little bit of flush funds. This could be another 10%.
Finally, you will have to keep a profit margin for yourself, which could be 10%.
All of this becomes 30% and you will have to deduct that out of your AARV value i.e. 0,000. This will give you ,000. So, this is what you are going to get from hard money lenders if you are looking to invest in a single family house situated in a typical neighborhood.
But if there is a private money lender, who is going to lend you more than 70% of AARV because if they will lend you that much amount of money, then there would be no space for both of you to make any profit.
That is why, it is better to make a decision about the worth of a property after it has been repaired and that will give you the highest to best value of that particular property, which is the most important thing.
But if you will become emotionally attached to the property and spend a lot of money on repairs without doing the calculations, then you can never make money on that property.
To make sure that your calculation is right, you should look at the lowest sold and active comparables within that particular neighborhood and make your ultimate decision on that rather than falling in love with the property.
If you will keep in mind only the highest comparables, then you will definitely be going to make a mistake because if someone has made a profit of ,000 on their property, doesn’t mean that you will also make the same amount of money in your deal.
These kinds of profits are made once in a blue moon but not everyone could be that lucky. So, you need to send independent evaluators from the similar neighborhood to evaluate the property and make a bid, based upon their reports.

For every particular need, there is a particular money lender. You can’t expect that anyone who wants to lend money will lend you, irrespective of your need.
There are different types of lenders in the market. Some are related to real estate and some are related to business. So, your first step before asking for lending is to find the right lender for your situation.
Instead of talking to every lender and wasting each other’s time, it is better to search few right lenders and then, find the best one amongst them. It will make things easier and much faster for you.
Let’s discuss different money lenders as per your loan requirements:
1. Title Loan – It basically means that you have title against which you are trying to get a loan. That title could be your car or some expensive jewelry. You will go to the money lenders who deal in title loans and sign a contract that you will give their money back in certain period of time and if you are failed to do so, they will take your title away from you.
2. Pay Day Loans – If you are in need of quick cash and you are doing a good job. Then, you can go to these lenders and asked them to give you money and for that, they can take the pay check you will get at the end of the month.
3. Signature Loans – These loans are completely dependent upon your credit history. If you have an excellent credit history and your bank account is free of any bad credit history, then your bank can give you this loan on good faith.
4. FHA or Conventional Loans – This comes under real estate and are usually owner-occupied homes or rental properties. For getting this loan, you need to have a very good job and credit history and you will need to go through a lot of documentation.
All of the above loan types need you to have a good credit history, job security and no judgments or tax liens or bankruptcy.
But what if you don’t have all of this or what if you are self employed person? Here come hard money lenders.
Hard money lenders usually give a lot of space and options to the borrowers as they are privately held and don’t follow the typical rules and regulations like other lenders.
Finally, if you want to choose the right hard money lender for you, then first you need to look at their funded deals. Just go through how any deals they have funded till now. That will help you understand that there is actual money involve in it and they are real.
You can easily find this information on different hard money lenders’ websites under funded loans or success stories, which gives all the details about that particular property such as purchase price and loan amount funded.

A smart, savvy and aggressive real estate investor will see the benefit in paying the higher interest rates and fees associated with hard money financing and will know that by using private financing as an investment tool and strategy there is more money to be made in the long run than waiting for traditional financing to come through.
The most important thing for real estate investors looking to utilize hard money as a tool to rehab and flip properties is to accurately price all construction costs and then build in the proper “buffer” money in the event the project goes over budget. The next most important thing is to know the market; more specifically, know what the property will be worth when the renovations have been completed. This will allow investors to aggressively price their properties to sell quickly. All too often I see borrowers get into trouble because greed gets in the way and either the property is not priced to sell or the construction budget falls far short of the actual cost to properly rehab the property for a fast resale.
Today’s private lending environment is full of lenders with money to lend and if a borrower/investor does his due diligence, accurately prices the cost of renovations and lists the property at 10% under market value to ensure a quick sale there are profits to be had.
As a rule of thumb, you should be prepared to put down 25-30% of the purchase price and should then be able to find a hard money lender willing to lend 100% of construction costs so long as the total loan amount does not exceed 70% of the as-completed value of the property.