Institutional lenders aren’t cutting it this year. Here’s why you need hard money.
When the Fed raises rates and big institutions like banks and hedge funds tighten money… Where is the real estate investor supposed to go to get funds?
2023 is a great time of uncertainty. Uncertain times can be the hardest and most expensive – but best! – for buying.
One solution for real estate investors: hard money.
It’s a simple truth. In 2023, you need hard money. Let’s explain why.
You Need Reliability
True hard money is from real people. They need the interest they get from these loans whether times are good or bad, so hard money loans are less likely to change with volatile markets.
These lenders don’t run when they see inflation, and their interest rates won’t fluctuate nearly as much as institutional rates.
In fact, banks’ interest rates are getting closer and closer to hard money rates. In the Colorado market, many banks are only charging 1 point less than hard money lenders.
You Need Hard Money’s LTVs
A huge issue with bank and institutional lending right now is the amount they’ll lend.
We’ve had a recent client share their experience with a big private lender. While they used to lend 90-100% of the purchase price of a property, they’re now offering 49% for comparable real estate in metro areas for certain borrowers. In smaller communities, they’re down to 60% LTVs.
Banks must do this, not just to mitigate risk, but also to attempt to keep their prices low. Hard money is not this way. Hard money rates and terms are the same in good markets and in inflationary ones. The hard money you get in 2023 is the same hard money you got in 2020.
You Need Flexibility
You need a lender who will not only be able to move with the markets but also work with your specific deal.
Maybe you need a second lien, a unique land loan, a bridge loan to buy your next project, or a bridge to cover the costs of a house that’s been stuck on the market for too long.
Big lenders and banks don’t provide those types of loans. And with the market that 2023 is bringing us, you’ll need all the flexibility you can get with your lender.
You Need an Investor-Friendly Lender
Many smaller banks and credit unions aren’t even open to lending to real estate investors. For your career, you need a lender who will work with people who have real estate businesses.
Larger institutions, however, have raised their credit score requirements so high, it boxes many investors out. Banks have raised their minimum credit score by at least 40 points. They used to take people with as low as a 620; now, it’s 640 minimum.
The problem is, some real estate investors don’t have great credit scores due to high credit usage on the lines of credit they use for flips. Hard money is the answer here, since it doesn’t keep strict score requirements.
Getting Hard Money in 2023
Other types of lenders have raised their rates, increased their costs, and lowered the amount they’ll give you in 2023.
If you need the same amount, for the same price, try hard money loans. Hard money doesn’t scrutinize you as a borrower and make decisions based on the Fed. It bases your loans on your property and your deal instead.
Not all lenders – of any type – will give you the same loan. That’s why we want you to use this free deal analyzer. You can enter information for three hard money lenders (or a hard money lender, a private lender, and a bank) to find out which option will truly save you the most cost.
Any other questions about hard money? Reach out at any time to Info@HardMoneyMike.com.