Category Archives: Real Estate Loans

Hard Money Lenders – The Secret of Successful Funding!

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Category : Home Loan , Real Estate Loans

Actually, only a small number of lenders truly understands the whole concept of fix and flip investing and these private hard money lenders are categorized into the following five basic types:

1. Residential lenders

2. Commercial lenders

3. Bridge lenders

4. High end lenders

5. Development lenders

Amongst these five different types of lenders, you need to find out which lender is going to be suitable for your real estate investment. Generally people start by investing into a single family home, that’s why they choose residential hard money lenders.

But the basic difference between the lenders depends upon the source of funds. That’s why; they can be easily categorized into bank lenders and private hard money lenders.

Bank Type Lenders – If you are working with a lender who is providing you funding with the help of some financial institutions, where they will sell or leverage your paper to the Wall Street in order to get you money. These types of lenders will be following some rules and regulations specified by the banks or Wall Street.

That’s why, in order to get the loan, you need to follow these rules and regulations, which isn’t suitable for a real estate investor interested in doing fix and flip investing.

Private hard money lenders – These are the lenders who work on private basis. They usually work in a group of private lenders, who likes to lend money regularly. Their best quality is that they do not sell their paper to any financial institution or bank. They have particular rules and regulations, which are made to help a real estate investor.

Private Lenders That Are into Fix and Flip – You can easily find residential hard money lenders, who are really into fix and flip loans. Most of the real estate investors find it quite difficult to get financing for buying a property, which they have taken under contract.

And when they finally a good property and contact a lender for funding, their loans can get rejected on the basis of some neighborhood problems. Then the investor look for another property but the lender couldn’t fund them because of market depreciation.

In this way, an investor is always looking for properties. But some lenders don’t have enough money to fund their deal, whereas others are continuously increasing their interest rates, which can’t be afforded. Apart from all these issues, you can find lenders who are willing to lend money on fix and flip properties.

These lenders also have certain rules and regulations like a typical bank or financial institution but they are designed to work in favor for the real estate investor.

Direct Hard Money Lenders – How to Calculate an Offer Price of a Property?

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Category : Hard Money Loans , Real Estate Loans

We receive a lot of queries related to the purchase price, repair costs and offer price of the properties. People want to know the calculation process used by direct hard money lenders for making an offer because it is a known fact that hard money lenders only lend 70%of market value after the repairs have been completed on a property.

First and foremost, you need to realize that the offer price and repair costs are two separate containers of money.

Lenders can fund you up to 100% of both of these containers but both of them should be equal or less than 70% of ARV (after repair value).

This doesn’t mean that you’ll get all the money together for closing the deal.

You will get a particular amount of money for purchasing the property at closing table and the repair money will be deposited into an escrow account after the deal is closed by a hard money lender.

If you are in a perfect situation, you won’t have to add any money as repair costs into the offer.

Let me explain this in detail.

It is very important to figure out what kind of repairs you are willing to do and get an estimate. After that you should determine the ARV. You need to take 70% of after repair value and subtract the repair costs.

This is the maximum amount which you’ll get as an offer and still get financing for the purchase price and repair costs.

On the other hand, you need to be very careful while estimating the repair costs and ARV.

But you need to keep in mind that the final amount of ARV and repair costs would be based upon what have been finalized by direct hard money lenders, not you.

This is usually quite different from the calculations of an investor.

The lenders usually hire the services of two different property evaluators to determine the ARV and repair costs. Both of them send more than a dozen comps after evaluating the property.

This is an extremely efficient system for determining the ARV and repairs, which is followed by few lenders like us.

So, if you are fine with putting some money down or invest in repair costs of the property, you can amend the offer price.

Another important thing, which you should keep in your mind, is the fees that are due during loan closing because direct hard money lenders will not finance that. This would be between 4-6% of the total loan amount and you’ll have to pay it from your own pocket.

The crux of the story is that you’ll have to work on several different offers before you get the numbers that make sense.

But it’s a surety that whenever you’ll find the perfect property, it would be worthy of all your time and efforts!

3 Easy Ways to Finance Your Flip

Category : Hard Money Loans , Real Estate Loans

Ask any home flipper and they will tell you one thing. It can be stressful! You will have to find contractors if you do not plan to do the work yourself. You will also have to make all the decisions as to what items will be used such as faucets, paint, and floor coverings. However, none of these decisions will be as stressful as choosing the right financing method if you do not already have a choice made.

Of course, your first thought may be to finance your flip through the bank. However, there are many situations in which financing through the bank will not be the best choice. Bank financing will require you to provide credit info and work history, along with many other contingencies. Most times, traditional bank financing will not be the best financing for a quick sale. There are other ways you can creatively finance your flip, and some of them are much easier. Here are three ways you can finance your flip without the hassle of dealing with the bank.

Home Equity Line of Credit / Unsecured Cards

If you already own a home and you have equity in it, you can actually open a line of credit and then make use of this equity to finance your flip. A home equity line of credit is much easier than having to go through the hassle of getting a bank loan or mortgage. Often, you can open these lines of credit with just a telephone call and a couple of signatures. Usually, you can get them through the same lender that holds your mortgage. This makes things much simpler overall and you can easily get enough funding to finance your flip provided you have the equity available. Another option would be to tap into low interest credit cards; these are unsecured and offer another creative financing method, pool together three or four cards and you could have -0,000 instantly!

Hard Money Lenders

Hard money loans are often referred to as rehab loans because they are used predominately for real estate investments and home investing. This is because the loans are designed to make it easy for you to finance the cost of the home, along with enough money to pay for the renovations. Here is how a hard money lender will work the loan. These loans are solely for investment properties.

For the most part, if you are using a hard money loan to purchase your flip, you will be able to finance up to 65% of “as is” value of the acquisition, along with 100% of the renovation costs. This way, you will be able to borrow enough money to buy the home and then have enough cash to actually do all the repairs.

IRAs

All IRAs are not created equal! In order to use your funds tax deferred, you will need to open a Self Directed IRA. This will allow you to (just as the term says) direct your funds to the investment of your choice that is allowed under IRS guidelines, real estate being one of them. So, you will be able to borrow against your retirement and use the money for a home flip. You will need to pay the funds back to the IRA within a certain amount of time that you determine, but this is a good way to free up cash for your flip and also build up your retirement tax deferred.

Should you not have loads of cash at your disposal, use one of the above financing options to get your deal done quickly and grow your business.

Private Hard Money Lenders – Choose the One, Which Suits You Best!

Category : Hard Money Loans , Real Estate Loans

I want to talk about the core difference between private and institutional lenders. An institution is basically a bank or a credit union, which provides funding for different stuff.

 

On the other hand, private is more about a bunch of people, who works under a private organization, which works towards helping people buying and selling good deals by providing financing. They are not held by government or any other regional organization but they work by themselves and use their own money.

 

Now, we come down to two basic types of lenders in the world of real estate:

 

1. Institutional lenders

 

These are the hard money lenders, who are a part of a bank or any other federal organization and they work with them. Although, it is quite difficult to get a loan from them because they look at lots of things including the borrower’s credit history, job, bank statements etc.

 

These are only stuffs that institutional hard money lenders are concerned about. They don’t have a real estate background, that’s why; they don’t care much about the worth of a property. Even, if you have a good deal, they won’t lend you unless your credit or job history is satisfactory.

 

There’s a huge gap between institutional lenders and real estate investors, which isn’t easy to fill.

 

2. Private hard money lenders

 

Private money lenders are usually real estate investors and therefore, they understand the needs and demands of a borrower. They aren’t regulated by any federal body and that’s why, they have their own lending criteria, which are based upon their own real estate understandings.

 

Their main concern is property and not the borrower’s credit history or bank statement. The motto of private hard money lenders is simple: If you have a good deal in hand, they will fund you, no matter what. But if you take a crap deal to them, then they won’t fund you, even if you have excellent credit history because they believe that if you’ll make money, then only they would be able to make profit.

 

If you have found a hard money lender but he or she hasn’t got any experience in real estate investment, then they won’t be able to understand your deal. They will always think like a banker.

 

A true private money lender is one, who can help you in evaluating the deal and giving you a proper direction and funding if you find a good deal. But if the deal is bad, they will tell you straight away. Before rehabbing a property, they know what would be its resale value, due to their extensive experience.

 

The basic difference between institutional hard money lenders and private hard money lenders is that the institutional lenders try to have everything in place and perfect order. They want to have all the figures and the amount of profit they would be making. They completely ignore the main asset, i.e. the property.

 

Whereas, private money lenders use their own fund and experience to realize what’s store for them. They don’t try to sell the paper or recapitalize. They just look at the property and see if it is worthy enough to rehab or not.

 

In the end, they just want to make good profits along with the borrower. If anyone goes to them with a good deal, they will fund them. Some of them only fund for the property, whereas, others gives funding for the repairs too as long as they can see a good ROI.

Private Lenders for Real Estate Transactions

Category : Hard Money Loans , Real Estate Loans

In most instances, when you are looking for private lenders for real estate then you are going to run into a number of hard money mortgage brokers. In fact, this should be the first place that you go to when you are seeking this type of financing. It should be immediately noted that private lenders for real estate often want substantial collateral well as a very strong return on their investment. You can anticipate that this type of financing will also only have a term of about one to three years. There are some exceptions to these rules, but you are going to be hard pressed to find a private investor or lender that is going to be willing to go beyond those terms unless you share a portion of the equity with the potential funding source.

In regards to the fees involved with working with a private lender for real estate, you can expect to pay 10% to 20% per year on the total amount of outstanding principal balance. You can also expect to pay an upfront fee of 4% to 6% of the face value of the loan. These fees are generally split equally between a mortgage broker, if applicable, as well as the investor. In some circumstances, these fees are either added to the total loan balance or are subtracted from the amount that they lend to you.
Returning to what was mentioned in the first paragraph, if you are seeking this type of funding then it may be in your best interest to contact a mortgage broker or banker. These people and firms often have a number of connections with individual lenders that are happy to make real estate loans. The collateral and high interest rates associated with this type of investing have actually caused more people to enter the market with capital. As the housing market appears to be bottoming out, the risk reward ratio for private real estate lenders has increased substantially.
One of the things that you should be aware of is that you are ultimately are going to need to refinance this loan very quickly. The costs associated with a hard money mortgage are several times the current prevailing interest rate. As such, you may want to be prepared to approach a traditional financial institution if you are seeking capital for a specialized property project. You may also want to investigate working with a private investor in regards to equity sharing as an alternative to this type of financing.
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