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

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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!

Hard Money Loans – The Pros and Cons

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Category : Hard Money Loans , Real Estate Loans

First and foremost, it is important to realize that hard money loans are equity based lending. They give funding based upon collateral and not upon the borrower.

The most important reason behind getting a hard money loan is to get an easy investment without much hassle. It is called hard because it is given on hard assets.
A property is considered to be good enough if you have good profit margin in it but if your property is doubtful like having some serious damage. If that’s the case, then you would find it very difficult to get a hard money loan for it.
Like everyone in the business, hard money lenders also want to make money. They want to see their margin that whether they can make profit on that particular property or not.
Therefore, it is important for you to realize that you shouldn’t get emotional about a property because that’s the worst scenario. If you get emotionally attached to the property, you would not like to listen anything against it but the final decision has to be made by the lender as he is giving you the funding.
As far as traditional lenders like banks are concerned, they are only concerned about the individual and so, if you are buying a property for ,000, they will give you ,000 happily.
On contrary, hard money lenders only care about the property. If the deal is good, they will lend you around -50,000 on it as they would like to keep their margin. But their process would be quick, so you don’t end up losing the property.
That’s the whole situation behind hard money lending. Private or hard money lenders are looking for good deals.
The reason why people prefer hard money loans is because it is very quick and fast. It doesn’t ask for lengthy procedures or documentations. They just send some individual evaluators to the property and based upon their findings, decide whether to lend on a property or not.
You must be wondering, how you could decide whether the property is good or not before coming to a hard money lender.
First thing you can do is draw comparables by looking at three or four actives and solds in the immediate neighborhood. You can check the similar square footage houses in the vicinity.
Check the ones, which are least expensive. You can check the houses which have been recently sold or are currently available for sale in the market.
There is another situation too. If you are looking at a house, which need some repair and you are interested in doing that. Then you need to draw comparables of those houses, which has been fixed up.
But please make sure that you have a property in hand. Don’t waste your time in imaginary or what-if situations.
You should have a property to talk about; otherwise it’s just a waste of time and money.
If you have a good property, you will get funding. That’s for sure. The amount of money could vary but as far as your deal is good, you will get the financing.

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

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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.

Building Your Real Estate Investing Team

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Category : Hard Money Loans , Real Estate Loans

To be successful as a real estate investor you will need a “team” of professionals that you can rely on. You do not need to build this team before you start investing. As you progress in your investing career you will meet many people in these fields that you will want to establish a working relationship with. Some team members will not work out and will have to be replaced. Don’t worry about this, as it is a normal part of the business. A great way to find your team members is through referral from other investors. Once you join a local real estate investors association you will meet active investors who will be able to guide you toward competent individuals in the business. One word of caution though – contractors have earned bad reputations. Therefore, most investors will not share their “best” contractor for fear that he will get to busy to do their work. Expect to have to sort through many contractors if you decide to do any rehab work. This team will be needed to successfully close your purchase and sale transactions. Not all members will be needed for every transaction but knowing they are in place will increase your confidence level.

Investor Associations

Most cities have a real estate investors association. You should visit the associations in your area and join one that you are comfortable with. Through these organizations you will find educational opportunities as well as networking opportunities. Attend as many of the educational programs as you can. This will help you to become more comfortable with each area of investing. The more areas you have knowledge in the better equipped you are to be able to meet the needs of sellers that contact you. Through networking at the association meetings you will be able to find many of your team members. You will also find other investors who will be interested in deals that you do not want. You can always pass these deals along for a bird dog fee or an assignment fee.

Wholesalers

You will find many wholesalers at association meetings. If you decide to rehab or rent property, a wholesaler will be a valuable source of property for you. They will spend the time and money to find the deal and negotiate with the seller. This allows you to spend your time managing your rehab or rental property. Make sure you verify their ARV (After Repair Value) on the property as well as their repair estimate. As long as the numbers work, you should not mind paying them their “wholesale fee”.

Real Estate Agents

Most real estate agents are not interested in working with investors. This is because they are trained to make “full price offers” on listed property. In every area there are a few agents that do work with investors. These are usually the most successful agents in the area. They understand that a good investor client means easy repeat business for them. You will find these agents by looking at who has the most listings in your target area as well as word of mouth at investor association meetings. These agents are very busy so it may be difficult to establish a relationship with them. However, it is well worth the effort in the long run. They are especially needed if you decide to be a wholesaler. They will have access to most of the bank owned properties.

Real Estate Lawyers

You will need a strong real estate attorney on your team as soon as possible. This person will handle closings for you as well as title searches. They can also give you legal advice as you run across unfamiliar situations (such as a seller in bankruptcy). You should make sure that your attorney specializes in real estate.

Lenders

There are three main type of lenders that you will be dealing with:

Hard Money Lenders – Based on ARV of property, your credit history and close quickly

Conventional Lenders – Based on your credit, current property value, slow closing

Private Money Lenders – Based on your relationship with the individual

You will find all three types at most association meetings. When you are beginning your investment career you will most likely be working with a hard money lender. They are called hard money lenders because they charge pretty hefty fees to make the loan. They will usually loan up to 70% of ARV for a period of 6-12 months. They typically charge 3-6 points up front to make the loan (each point is 1% of the loan amount), interest rates of 12-18% and will hold repair money in escrow to be paid out as repairs are completed. Although these fees sound expensive they really aren’t. It is much cheaper to borrow from a hard money lender than it is to take on a money partner and give up 50% of any profit made. See the following simple example for a comparison using a 6-month holding period, 3 points upfront and 12% interest and a final sales price of 5,000:

Loan From Hard Money Lender

Sale Amount 145,000

Loan Amount 100,000

Points to Lender 3,000

Payments to Lender 6,000

Partner Split 0

Net Profit 36,000

50% Money Partner

Sale Amount 145,000

 Loan Amount 100,000

Points to Lender 0

Payments to Lender 0

Partner Split 22,500

Net Profit 22,500

As you can see, hard money lenders are not as expensive as you thought!

You will probably only use a conventional lender when buying long term rental property. Conventional lenders will be necessary when you sell property to homebuyers. A good mortgage broker will be able to find financing for buyers with a variety of credit issues. An average broker will only be able to finance buyers with perfect credit. Make sure you look for brokers who can find financing for people with “A”, “B” and “C” credit. Once you have established a track record as a successful investor you will be able to attract private investors. These are people who have money that they will loan to you in order to get a better return than a bank or the stock market will give them. You can replace hard money lenders with private lenders and stop paying the upfront fees. You may also be able to negotiate a lower interest rate than the hard money lenders charge.

Insurance Agents

There will be two main types of property insurance that you will need. These are “Builders Risk” and “landlord” insurance. When you are dealing with a vacant house that is under repair you will need “Builders Risk” insurance. Builders risk insurance will cover the property and usually the materials being used during the rehab (in case of theft). It is more expensive than a landlord’s policy because of the increased risk. A landlord policy will cover the property only, not the contents. Your renter will need to have a renter’s policy to cover their belongings. Landlord policies usually will not cover vacant property or property under repair. Most agents do not sell both types of policies. Make sure to acquire the correct type of policy so that you are always covered.

Hard Money Lending Success – It’s All About Relationships

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Category : Hard Money Loans

For those who are new to real estate investing, it often seems as though there’s an “inner circle” of deal makers-the people who know where the deals are, how to get the money to buy them, and always get there first. It’s no accident that the same real estate investors work with the same hard money lenders and private lenders again and again. They’ve built a successful relationship based on helping each other to make money-and anyone can do this!
Seasoned pros who have built incredible wealth through investing in real estate know that their relationships with hard money lenders is key to finding the good deals before everyone else, and having a ready source of private money to borrow to purchase those properties.
Here’s how even the biggest novice at real estate investing can forge relationships that lead to more and more successful real estate transactions:
Have lunch with your hard money lender. Once you have found a good, seasoned hard money lender, invite him or her to lunch once every few weeks. And you can do this with a few lenders. Get to know them personally, as well as their restaurant preferences, and always pick up the tab. Over lunch, you can discuss what deals they’re working on, what you’re looking for-and you might even pick up a deal!
Of course, it might take several months of these lunches to produce any deals. But you’ll get to know more about their business (their lending criteria and what kind of deals they work on most often) and they’ll get to know your business structure too (for example, whether you invest as an entity or an individual, and whether you prefer to “flip” investment properties for a quick profit or “rehab” them before selling).
Share the wealth with your hard money lender. Once you know your hard money lender(s) well, you can refer real estate investment deals to them that fit their criteria. They’ll appreciate it, and most likely, they’ll remember that they “owe you one.”
Make the hard money lender’s job a little easier. You can do this by submitting a professional, organized loan package with compelling information about why the investment is a good idea and what your plans are-and why the lender should make a loan to you with confidence. Anticipate questions that the hard money lender or private lenders might ask, and answer them in the loan package.
Get to know the private lender too. Private lenders can be real estate professionals or savvy businesspeople, but very often, they are simply retirees with money to invest. They lend out their money and it comes back to them effortlessly in the form of mortgage payments-with much higher interest than a CD or money market account would pay.
But just because private lenders don’t have to be actively involved to collect their checks doesn’t mean that they aren’t curious about the deals they are funding. If you send your loan payments directly to the private lender, remember to always send them in early, enclose information on how the project is going (such as before and after photos), perhaps let them know how much profit you made, and thank the private lender for being a “partner” in your project’s success. That makes the deal more rewarding to them-and those private lenders will be more likely to help you with future real estate financing needs.
Work with the same real estate investing team of hard money lenders and private lenders for continued success. Once you have a successful investment deal or two under your belt, don’t forget who helped you get there! If it’s possible, work with the same hard money lenders and private lenders on other deals-doing so shows that you are a person of integrity and someone they can trust.
Real estate financing through hard money lending is not about your credit score, your income or even whether or not you’re gainfully employed. Hard money loans are based on asset value-the quick-sale price of the property you’re buying. And that means that anyone can be a successful real estate investor…as long as you have the right relationships.
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