Hard Money is Scary!
So, you just found the perfect house to fix and flip, but the only way your bid will get accepted is if you can close within a week.
That means you need to team up with the much feared and misunderstood creature: Hard Money.
You’ve heard many rumors of this being, like it’s a big, ol’ fat trap that’ll suck your bank account dry. But fear not! Hard money isn’t as scary as rumor has it, especially if you take three simple steps to protect yourself.
Ignore the rumors and do a little homework.
What is hard money? Really. Understanding this type of loan will save you tons of headaches in the future. Because those who have a scary run in with it do NOT use it correctly. They might treat it like a regular bank loan or accept the first hard money loan offered to them. Both spell trouble.
Understand the REAL costs and benefits.
If you only look at interest rates, then yeah, hard money is more expensive than bank loans. But bank loans come with other costs, like time, contingencies, and paperwork.
For example, if you’re competing against five other investors, you have the power to bid lower and still win. Because sellers of fixer uppers don’t want to deal with banks. Banks take too long to close and require appraisals and inspections. Therefore, cash buyers usually win even if they bid thousands of dollars lower than the next bid.
Learn the difference between hard money lenders.
Hard money lenders come in all shapes and sizes. It’s like buying new furniture. If you only go to one shop, then you get what you get. But if you go to multiple shops, then you can compare different styles, prices, and terms.
Hard money lenders are no different. If you only call one, then you get what you get. And that, again, spells trouble. You need to shop around so you can compare lenders and find out what they offer…and what they require. And if you come across a hard money lender who offers an interest rate that’s too good to be true, then be prepared to face the scary monster that you’ve heard about. Because junk fees might come spewing out of it.
Bottom line, turn on the lights. Hard money is only scary if you sit in the dark and hope for the best.