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

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.

Getting Comfortable with Hard Money Investing

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Category : Hard Money Loans , Real Estate Loans

Many real estate investors overlook hard money loans as a strategy for acquiring property. That’s because these loans are typically used by desperate property owners looking for a way out of the real estate market, rather than into it. But hard money can work for anyone, and it can be particularly useful if you’re a new investor looking to build your portfolio quickly.

Hard money loans can generally be described as high interest loans available to borrowers with any credit rating, as long as they can can provide solid collateral – usually equity in real estate, such as a home. These loans are almost never issued by banks or deposit institutions, but rather by private lenders who specialize in short term lending at high interest.
Normally a home owner in need of a big loan would apply for a second mortgage, using real estate equity as collateral, but bad credit can make things difficult here. If a home owner has missed a few mortgage payments, the banks may refuse to provide more financing – hard money might be the only option in this case.
The limit for hard money loans typically hover at about 60 to 70 per cent of a property’s quick sale value, defined as the price a lender could reasonably expect to realize if the borrower defaulted on the loan, and the property was liquidated fast. The interest rate for a hard money loan is usually in the 15 to 25 per cent range.
Investors can take out hard money loans to buy a property, as long as they provide acceptable collateral – in this case it could even be the property they’re buying. The strategy here is to find a pre-foreclosure property, or any real estate with an owner prepared to sell below below market value as long as the sale is fast. If the investor can re-sell the property at full market value, before too much interest is paid on the hard money loan, he or she can make a significant profit. Hard money loans have helped many successful investors get started in real estate.

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.

What Does It Take To Be A Professional Investor?

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Category : Hard Money Loans , Real Estate Loans

With current mortgage problems and the market on a constant roller coaster when is the right time to become a real estate investor? What is do successful investors know that the hobby investors fail to recognize? Who can we listen to get solid investing advice that will help me achieve my investing goals?
The first rule of thumb when it comes to becoming a professional real estate investor is buy low and sell high. Wow what a break through concept! Lets take a look at what the reality is. Right now as the real estate market is tanking, according to some people, the professional are starting to come in and buy everything up. What are the hobby investors doing? They are panicking and dumping their high priced investments that they bought right before the market tanked.
The professional investors are getting wholesale priced real estate at incredible terms. The hobby investors are giving away their properties at incredible terms, lease options, rent to own, no bank qualifying etc. This isn’t exclusive to real estate…the same thing happens with the stock market and the hobby investors always wonder why they are losing money. The hobby investor waits that the market is going up and looks like a safe risk before jumping in the game. The professional investor makes up the rules to the game and makes money on the follies of those that don’t understand what the rules are.
Buy low and sale high. Why is that concept so difficult to grasp?
To move from hobby investor to professional investor you first need to determine your own personal why. Why you are investing. Why you are willing to learn the game. Why are you willing to risk the little or lot that you have acquired over your life? Once you have determined your why then you need to solidify in your mind that you are going to do whatever it takes to reach your goals, but more importantly that you are going to do it right. Cutting corners is never a good idea especially when you don’t know where the corners are.
From there you need to assess what tools you already possess and what you need to learn and then be determined that you are going to get the investing education that you lack. You can do this in two ways. Trial and error or get some help. Trail and error is a very difficult road to take, trust me I know. It is only a mater of time before you will make a critical error that will end up costing you more than you want to pay. For some, trail and error has cost them everything (house, cars, family etc.).
For your sanity and your families well being work with a mentor or a coach. Start by looking in your local investment club for a mentor. Yes you will have to get off of the easy chair to become a professional investor. If you don’t have confidence in the mentors that may be available look for a real estate investment coach. Make sure that the coach that you get is working the program that they teach and is already successful. There are many programs out there and their focus may not be real estate investing so make sure that they are focused on real estate investing and that they will guarantee a return on investment.
The areas that are critical for a successful real estate investing career are first and foremost do your due diligence. Due diligence includes market analysis (learning what the market is doing, what areas are good for rentals, which are good for rehabs, etc.) and property analysis (learning to run the numbers on what the true costs are of buying a property and what the net will be at the end regardless if it is a rental or a rehab). Then you must understand negotiations (creating win/win agreements), creative financing (using other peoples money to make you money), contracts and offers, property management, and the tax benefits.
If there is one thing that I want you to take away from this article is to develop a team of professionals around you. That team will include real estate specific accountant and attorney. An experienced property manager, real estate agents/brokers and finance people (mortgage brokers, hard money lenders, etc.). Be the dumbest person on your team, meaning work with highly skilled and intelligent people that will increase your investing IQ. If you are the smartest person on your team then it is time that you change the team players because they won’t be able to help you.
If you are thinking to yourself right now that this sounds like too much work then do yourself a favor…stay away from real estate investing because you will lose money. Once you have master these areas then you will understand that professional investors can make money in any market. You will quickly move out of being a hobby investor into becoming a professional investor and allow yourself to reach your goals your reason why. That reason why is why you are doing this in the first place.

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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