Hard Money Lending Success – It’s All About Relationships

It depends a few things like whether you want to hold onto the property or resell it quickly or how much cash you are putting into the deal and how much you are borrowing. It depends on what your credit looks like.
Will you want monthly interest payments or do would you prefer to pay on the back-end. Should you use your cash or someone else’s cash?
Much of this will depend on your strategy and personal resources.
Real estate investment financing can take many forms. I’ll break it down simply into three categories.
Bank Financing
If you have the credit and the necessary down payment, you can get a loan from a bank or mortgage broker. When going this route it is important to make sure you factor in monthly costs such as taxes and insurance and make sure your budget will cover the monthly note.
Six months of mortgages with no income can strip all your profit out and leave you working for nothing.
If you’re buying rehab-grade property the bank might get picky, since the property will be their collateral after all. They might not like the idea of financing a property that isn’t reasonably habitable.
Another thing to keep in mind with banks is that you will pay a higher interest rate on non-owner occupied loans
Cash
Cold, hard cash is King when buying properties below market value. The ability to act quickly and not wait for bank approvals is key to acquiring distressed property or other-wise untouchable property.
If you don’t have your own cash for the deal, you can use a hard money lender.
Hard money lenders will be local investors most likely but there are some mid-size companies in the hard money business. Most will charge close to double the interest rate a bank will, plus extra points for funding the deal.
Many hard money lenders are long-time real estate investors that have branched out and will understand the process better than most bankers. They will care less about your credit than they will if you have a good deal or not.
Hard money lenders will only do business with you if you’re buying the property at or below 65-70% of the After Repair Value.
Another route is to find your own private investors to put up the cash and split the profits on the back end. Give the investor a 1st position on the property as collateral.
In this way, both private investors and hard money lenders can potentially make more money if you default by foreclosing and completing the project themselves.
Creative Financing
Many real estate investors specialize in buying homes with little or no money down.
They achieve it through a variety of ways that fall under the umbrella of “Creative Deals”. They’re usually situations in which the owners are in distress due to foreclosure, bankruptcy, divorce, or any other situation that creates urgency to sell quickly.
Methods include the Lease-Option, in which you lease the property with the option to buy later. You can assume the existing mortgage. In some situations the owner of the property can simply quitclaim the deed to you in exchange for taking over payments.
With creative deals make sure you have a good real estate attorney on your side making sure your doing everything legally and that all parties are well informed of their rights.
Any of these methods can allow you to finance or gain control of the property so you can then apply your strategy for wealth, whether it be renting it out or reselling.