Hard Money Vs Banks: Which Lending Option is BEST?

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Hard Money Vs Banks: Which Lending Option is BEST?

Investors are always wondering which lending option is best for their needs and when is it better to use hard money instead of banks? Let’s start by identifying what is hard money. Hard money is asset based lending that real estate investors can use when their credit scores are not up to par with bank requirements. Unlike banks, hard money lenders aren’t looking at the credit scores. Instead, they are looking at the project and the property. Today banks are getting tighter and credit score requirements are increasing. As a result there is a decrease in funding. Have no fear! It is still possible to get 100% financing with a credit score below 700. Let’s compare hard money vs banks to determine which option is best for you.

Who uses hard money?

Hard money is for everyone! From the new investor, to those who have 20 years of experience, everyone can benefit from using hard money. Hard money creates flexibility that many banks can not provide. Whether it’s a small deal in a small community, seconds, thirds, or even land, hard money can help you complete any translation that is asset based. As long as the property is good, with a good exit strategy, then you can negotiate to get hard money lending 

What can we do for you at Hard Money Mike?

Here at Hard Money Mike we are able to provide 100% financing on BRRRR and 100% financing on fix and flips, as long as the ARV is good. For clarification, ARV stands for the after repair value. A hard money lender looks at the value of the property and what it can become based on the ARV. That’s another big difference between hard money and banks. It doesn’t matter when you go to a bank, or what kind of a deal you are getting. Banks will only focus on the LTV or loan to value amount.

Let’s look at an example of hard money vs banks:

 

Property purchase $300K

ARV 600K
Hard Money As a hard money lender, I would feel comfortable lending up to 100% on the deal because it’s a great deal.
Hard money is better than banks when you are basing it on ARV
Banks  If you go to a bank, they will compare the ARV and the purchase price and determine which is lower. In this example, the banks would base their decision on the 300K purchase price. 
From that base amount of 300K, the bank will then require you to put in 20% to 25%.

When you are deciding between hard money and banks, always remember that hard money is best when you have good deals based on the ARV, and when you don’t want to put a lot of money in. This is also true for BRRRR, if you want to find that undervalued property and use a hard money lender to fund 100% of the rehab. Once again, if it’s a good deal based on the ARV in this market at 70% to 75%, and you can refinance it, then hard money has the flexibility that you need. 

Credit score requirements and limitations.

Most hard money lenders do not look at your credit score to make their decision. Instead, they might look at your score to make sure that you are paying, not in bankruptcy, and not in foreclosure. However, hard money lenders will not be concerned by high usage or low scores. These values are not a big deal for hard money lenders. Most importantly, hard money lenders will not kick you out the door because you have a 679 credit score instead of a 680. 

You don’t need to fit into a box.

While banks often have slightly lower rates and longer term options than hard money lenders, banks want you to fit into their box in order to lend. Whether that is meeting their credit score requirements, income requirements, or their coverage ratios, banks do not have the same flexibility as hard money lenders. Flexibility and uniqueness is where you go for your hard money lending. Especially if the property is based on ARV and the value is there. 

3 instances where you should use hard money over banks 

  1. If you want to base your lending off of ARV and have a good deal. 
  2. If you have a credit score that does not hit into the 700s. 
  3. If your income just started or you aren’t 2 years out. 
  4. If you just write everything off. 

What do you need to look for in a hard money lender?

It is imperative that you get a hard money lender who is flexible enough to do your deals when you have a good deal. What is a good deal? A good deal is dependent on whether or not the market is good in the area, if you have a good exit strategy, and a great LTV. Another important factor to consider is if you have a bridge or a lender set up on the other side. Hard money lenders are not looking for deals that are 100% financing with 100% LTV. 

Where do you find hard money lenders?

1. A local person or company: 

This is a local person or company who is lending true hard money. Make sure that they are well established and have a web presence before diving in. Wall Street has taken over the big loans and only accepts investors who can fit into their box. Hard money on the other hand has no box! It provides the flexibility to fit any investor no matter what the deal. 

2. Real estate groups: 

Connect with the investors in your real estate group. They all know some hard money people who they have worked with in the past. This is especially true if they’ve been in this business for more than three years. By connecting with people in the community, you will find hard money lenders who are reliable.

3. Real estate forums: 

Real estate forums are an excellent place to go and ask questions to find out who the hard money lenders are in your area. There is always a need for hard money in real estate investing. 

What do you look for and what questions should you ask?

First and foremost don’t get involved with a hard money lender who has a lot of up front fees. Some may ask for $1,000 to $5,000 down. Don’t go down that path, because they are just collecting fees, not helping investors. Instead, look for people who have experience within your real estate groups and forums. Do your own research to make sure they are funding deals and have some flexibility with their lending. Whether it is a cross lien, second, or even commercial property. It is also important to ask what they will and won’t lend on. Finally, it is important to start working with them and building that bridge. This will help you in the future if you have another deal that needs hard money lending.

Watch our most recent video to find out more about Hard Money vs Banks to discover which lending option is right for you.

We are here to help you with your hard money needs here at Hard Money Mike. Contact us today to find out more.

How Good Debt Can Make Real Estate Investors Rich

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How Good Debt Can Make Real Estate Investors Rich

How can good debt make investors rich? As real estate investors, it is important to differentiate between good debt and bad debt. You do need debt to create income, which in turn creates wealth. That is what real estate investing is all about! Learning how you can create wealth using other people’s money, also referred to as OPM.  You don’t have to be rich, have a college degree, or a PHD to succeed in this business. All you need to understand is how using other people’s money can create wealth and income. Today we will run through the numbers to give a clear picture of what to expect when purchasing a property and how you can get rich off your investment. 

Investors who Fix and Flip

If you’re a flipper and making $50K to $200K a year or more, then it’s very likely and very doable that you will create wealth. All you have to understand is what is good debt and what is bad debt. Good debt is debt that is going to create income and wealth. Real estate investing is all about using leverage, or other people’s money. It may take a little bit of your money, if any, to get started on this venture. In the end it’s all about finding really good properties, undervalued properties, and properties that people no longer want. By purchasing them correctly and using the right debt, you will in turn create income and wealth very quickly. 

Wealth and Income Example for Fix and Flip Investors

Let’s take a look at a normal purchasing situation for a fix and flip investor. This is someone who is doing 4 to 5 properties a year. Yes, you can get into 4 to 5 properties very easily if you are focused and understand your cash flow. In order to accomplish this, you need to use other people’s money for the majority of the expenses, if not all of them, depending on the deal. Keep in mind that a good deal is something that is under 70% all in.

ARV: Is the estimated value of the property after repairs have been completed.

Profit: An average of what you want to make of the sales price. Normally a range between 10% and 15%

ARV = $300,000

Profit at 12% = $36,000  

4 flips a year = $144,000

5 flips a year = $180,000

Numbers break down:

ARV = $300,000 at 75% means that you are all in at $225,000

All in total $225,000 broken down:

Purchase price = $175,000

Rehab budget = $50,000

National lenders: 

10% of purchase price = $17,500

They cover 100% of rehab = ($50,000)

After closing costs and interest you are into this for roughly $25,000 to $30,000 for each property

Now where else can you put in $20,000 to $30,000 and come up with $36,000 in a matter of months? That is money that you are bringing into your life just by using other people’s money, using debt, and doing it correctly. 

How do these numbers compare to other types of investments? 

The majority of investors are only investing in stocks and bonds. If they get 8% then they are happy with their investment. However, if they put in $30,000, then they may only get a $2,400 profit for the year. Compared to the $36,000 that you created in a matter of 4 to 5 months, their profit is just a drop in the bucket.

Wealth and Income Example for Rental Properties

Maybe you want to invest in rental properties also. There is a process out there called BRRRR, which stands for Buy, Rehab, Rent, Refinance, Repeat. These rentals are properties that you intend on keeping in your rental portfolio long term. They can not only create wealth, but will build equity and acquire a monthly income. You can get started by finding a property from a wholesaler or real estate agent that is a good deal. It may need some work, but real estate investing is all about finding undervalued properties and turning them into profitable investments.

Numbers break down:

ARV = $200,000 at 70% means that you are all in at $140,000

All in total $140,000 Purchase price and Rehab budget (normally less for rentals)

Refinance break down:

Refinance at 75% of $200,000 ARV  = $150,000 (what you owe)

Equity created = $50,000 net worth

There are some closing costs for both loans 

It’s all about getting into the right debt on the right properties. From purchasing the property to fixing it up, all of these expenses can be paid using other people’s money, a hard money lender, or even a private lender. Now it is time to use another form of debt. This is long term debt, such as a traditional loan, DSCR, or whatever loan is going to work best for your needs. If this is done correctly, you can then refinance everything including closing costs and payments, up to 75% or even 80% depending on the products that you use. 

In conclusion

All you need to get rich is a clear understanding of how using other people’s money can create wealth and income. Nowadays, we see more credit card debt and bad debt that is greatly impacting people’s ability to get rich. As real estate investors, we need to turn to more asset based debt, in order to create the lifestyle, income, and wealth that we want.

Watch our most recent video to find out more about how good debt can make real estate investors rich.

If you have a good deal at 70% or below the ARV, you can reach out to us! We would be happy to talk to you about your investments, provide a fix and flip loan, and help you find OPM.

Why Banks Say No to Real Estate Investors

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Why Banks Say No to Real Estate Investors

Why are banks saying no to real estate investors and turning away more business loans? The answer to both of these questions is that there is less money out there. This shrinking pool of money has created a new reality for real estate investors. Unfortunately the money is no longer looking for you, but instead you have to go out and look for it. In further investigating why banks are lending less, what’s available, and where you can find it, investors can make a plan to succeed.  

Why are the banks lending less?

First, Banks lend off of assets 

Assets are capital plus deposits. The Fed allows banks to take a multiple of 10, 20, or even more times the original amount. The more assets a bank has, the more they can then in turn lend out. More people are moving money out of the banks and into government bonds. These bonds are backed by the government and often have a higher interest rate than what the banks are paying. Banks are seeing their deposits shrink dramatically, thus decreasing the amount of money they are legally allowed to lend.

Second, Reserves for loans in default 

The Fed also requires all banks to put money aside for defaulted loans. The more loans that they have in default, or ones who could potentially default, the more money the banks have to put aside. By setting money aside, the banks are not able to lend out money, let alone multiples.

What’s happening inside these banks? 

First, Receiving less than paying out 

To put it briefly, savings accounts and CD’s that were booked years ago at low percentages are experiencing a dramatic increase. What started at a monthly profit of 3% to 4%, has become a deficit of 5% to 5.25%. For this reason, investors are now upside-down on their assets.

Second, More Notes Maturing

Now, the notes that banks wrote 3 to 5 years ago are now coming due. What started at 3%- 4% interest rates, has skyrocketed to 8%-10%. As you can see, lending is no longer in the forefront of banks’ minds in the traditional sense. 

In summery

We have deposits leaving the banks, we have loans that are now upside down, and people can no longer qualify. All of these factors combined shrink the funds that banks have available for business owners, for flippers, and for people buying rental properties. With less money available, banks begin their journey upstream to find the “best of the best.” They are looking for people who are bringing in deposits, have good credit scores, and most importantly, they have money for reserves and low loan to value. 

What can investors do about it?

More clients are leaving banks and selecting an alternative lending option. These include hard money, private lenders, and OPM (Other People’s Money or Peer to Peer)).  In doing so, they are taking some of the money that was available for new investors and unique investors as well. This in turn causes the pool to shrink even more. What can investors do to stay afloat in these rough waters? They need to be the aggressor and go out looking for lenders that are still able to lend.At Hard Money Mike we always talk about leverage. Real estate is a leverage game and you need to seek out lending opportunities that can provide the leverage you need to win. The reality is that lending opportunities are only going to get worse, It’s not going to get better.

Here’s the upside to that though, the people who learn to play the game with the new lenders are going to have a lot more properties to pick from, and they will have the opportunity to find even better deals than before.You have to be the person out there searching and finding this money so when these deals come, you are going to create wealth. 

Here at Hard Money Mike we are still able to lend up to 100% on a really good deal! Watch our most recent video and contact us today to learn more about what we have to offer real estate investors. 

The Art of Comping Real Estate Properties

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The Art of Comping Real Estate Properties

Master the art of comping real estate properties by determining if the valuation of the property is accurate before you buy. Whether you are selecting a property to sell, or appraising the property to keep, it is crucial that the valuation of the property remains front and center. With keeping this in mind, investors not only make a profit, but more importantly create generational wealth. 

So, what do you need to look for before purchasing your next property? Well, here’s a quick and easy guide that allows you to become an expert at comping real estate properties.

It really is as easy as 1, 2, 3! 

First, don’t trust the sources that are selling you the property!

Whether it is a relator or wholesaler, their main goal is to make money off the sale. In almost all cases, they are wanting to sell a property for as much as possible just to make a larger profit. Don’t dive into a purchase without doing the research yourself, checking the valuation, and most importantly comparing apples to apples.

Second, put yourself in the buyer’s position!

It is easy to get wrapped up in the numbers and forget to look at properties from the buyer’s point of view. Take a step back, and look at the neighborhood. Do neighborhoods in the area have the same amenities? What about the square footage of the home? How is it comparable to other properties on the market? Finally, is the property in need of a lot of work? These are just a few questions you need to ask yourself to determine if your comps match the valuation of the property.

Third, find a few good properties per year!

Successful real estate investment is created by becoming a master at working smarter not harder. Investors often see a deal and jump in feet first without comparing properties. Become a master by seeking quality investments over quantity. 

 

Five Major Comps

Are you wondering what to compare when assessing a property? What do we mean by “comparing apples to apples”? Well, look no further! These are the five major comps that need to be evaluated prior to investing in a property. 

1. Square Footage

Don’t stretch your square footage in hopes of increasing the property’s value. Take a good look at other properties on the market and compare the square footage to the asking price. Do the numbers add up? 

2. Number of Beds and Baths

When comparing properties, it is extremely important to compare the number of beds and baths to that of other properties on the market. On average, people typically pay a little more for baths. Get your comparison ducks in a row before you get caught up in the buyer’s bubble.

3. Location

Location, location, location! Make sure the property that you are considering is in a similar setting. Is your potential investment in a busy upcoming area, or a quiet house tucked away near a local park? Location can greatly affect the valuation of the property and impact your future cash flow.

4. Parking

Put yourself in the buyer’s shoes when evaluating parking allocations for a property. Does it have a garage? How many spaces are available? Is street parking the only option? Every property is unique, so be sure to go the extra mile before investing.

5. Communities 

Not all communities are the same, nor should they be valued as such. A few things to consider when comparing communities are, the lot size, community amenities, bike paths, parks, and proximity to major roads. If your property doesn’t have the same amenities, it is vital that you continue researching similar properties in the area. 

Watch our latest video to discover more about mastering the art of comping real estate properties.

Would you like more honest and fair help with your comps? Contact us today!

Why Do Lenders Sometimes Reject Your Real Estate Investment?

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It’s important to learn about what lenders consider ‘bad deals’ so that you can avoid those pitfalls and get the money you need for your real estate investment!

As a lender, our #1 goal is to make sure our investors are putting money into strong projects with relatively guaranteed returns. It’s in everyone’s best interest to be critical of questionable deals so that no one ends up in the hole.

Especially if you’re a new investor, you can learn a lot by talking to your lenders about what they’re looking for and how they determine the strength and safety of a real estate investment. 

Today, let’s dive into some of the red flags that could get your investment rejected by a lender:

1. Tight Margins

Lenders look for a minimum 15% profit margin. 

This means you’ll ideally need a loan for somewhere between 70-75% of the After Repair Value (ARV). That gives you a 25-30% buffer to cover interest, closing costs, and maintain that 15% profit margin.

A loan that crosses into 80-85% ARV territory is too close for comfort. With that large of a loan, your margins are slim, and the likelihood you’ll turn a profit gets increasingly unlikely.

Especially if you’re a new investor, you can feel a lot of pressure to get in the door and get moving. However, our 25+ years of investing experience has shown that it’s far better to do 1-2 good deals a year than 4 bad ones that could potentially lose you money. 

Be patient and critical. Selecting projects with a comfortable profit margin of 15% or higher is a much safer investment than one that needs a 85% ARV loan.

Lenders want to see you make money. If you’re not making money, then your investment career will be short lived, and lenders want to see you set up for future projects.

2. Fuzzy on the Numbers

When you meet with a lender, you need to demonstrate that you understand how the numbers and money fit together. Show your lender that you understand…

  • ARVs
  • Scope of the project
  • Purchase price

If you’re fuzzy on the numbers, it’s a red flag for lenders. 

The less you know, the more risk your lender takes on by giving you money. Even if the deal has a good profit margin or ARV, if you can’t articulate and explain that, it’s a bad deal for your lender.

Take time to understand your own numbers. Be able to defend it as a good real estate investment! 

It’s okay to ask questions and do research—you’re always welcome to reach out to us with your questions! 

But do all that learning before you’re in a meeting, asking to borrow money.

3. Dishonesty

If you lie to your lender about anything, expect them to decline your deal the moment they find out.

It’s far better to be honest—about bankruptcy, foreclosure, credit card debt, savings, etc.—than to wait for us to find out.

Lenders need to be able to trust you, so don’t hide information from them.

If you’re a new borrower, it can be tempting to inflate your expertise, even to pretend you’ve done this before. Be honest that you’re starting out, but then show them that you understand the numbers and are prepared.

Dishonesty can ruin your reputation and relationship with a lender. 

Even if there’s information you’d rather sweep under the rug, it’s better to be 100% honest.

The Bottom Line

At the end of the day, most lenders (including us!) want to work with honest people who know their numbers as they build wealth through real estate invesment.

In the current economy, banks are offering fewer loans, so building good relationships with smaller lenders is increasingly critical for successful investing.

If you have a deal you want us to look at, reach out to us at Info@HardMoneyMike.com. We also offer many tools and loan options that can help you learn more about investing.

Our goal is to partner with you so that all parties come out on top.

Visit our YouTube channel for educational videos about real estate investing.

What Makes a Good Real Estate Investment for Lenders?

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As an investor, you should know what your lender is looking for when they’re looking for a good real estate investment. 

Recently, we discussed the 15% rule and why that 70–75% ARV is so important to ensure a profit on your deals. 

We want to make sure you’re prepared for all the ins and outs of real estate investing so you’re not surprised by any fees or payments. 

Part of that is understanding what a good deal looks like from the lender’s perspective.

What is Your Lender Looking For?

When we look at deals, we’re looking to fund 70–75% of the ARV. The final 25–30% are taken up with your profits, closing costs, and other fees.

However, when determining our numbers, there are three things we look at:

  • Purchase Price
  • Selling Price (ARV)
  • Rehab Costs

These three elements and the way the numbers balance between them tell us a lot about a property and an investor.

If an investor is looking for an ARV of $200,000, then we’re going to look at the moving pieces under the rehab proposal to make sure that’s a reasonable ask. 

Additionally, a $200,000 market is very different from a $1M market, and your lender wants to make sure all the numbers and features of the property line up for the target market.

As lenders, we also want to know that you understand the relationship between how much you’re going to need, how much we’ll lend, and how much you’ll sell for. Understanding all of this is critical if you want to be profitable.

Returning to our example, here’s where the numbers stand:

  • Purchase Price
  • Selling Price (ARV): $200,000
  • Rehab Costs: $30,000

75% of the ARV would be $150,000, the maximum loan most lenders will offer. 

When your lender looks at a deal like the one above, we want to see a purchase price of no more than $120,000. Combined with the rehab costs, that maxes out that $150,000 loan. Any higher than that, and it will be very difficult for you as an investor to turn a profit.

An unprofitable deal for an investor is a risky deal for a lender.

Of course you could dip into your profit margin and spend more. However, protecting that 15% is what lets you keep going in the real estate game. 

So What’s a Good Real Estate Investment?

A good deal is one where you put all these numbers together and prove that you’re going to make a profit.

Show your lender that you understand what it takes to bring this property up to the market conditions required for your ARV.

Especially if you’re a new investor, don’t feel pressured to take risks. It’s always better to do fewer deals if that’s what it takes to protect your profit margins.

Where We Come In…

We understand that numbers sometimes get confusing. But that’s why we’re here. We’re always happy to run through these numbers so that you understand your project before approaching a lender.

We also have free resources that can help you learn more about your investment options.

If you have any questions, reach out to us at Info@HardMoneyMike.com or fill out a contact card.

Happy investing!

Real Estate Investing for Beginners: The 15% Rule

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Over the next few weeks, learn more about real estate investing for beginners. Today we’re looking at the 15% rule…

How can you tell if a deal is “good” or not?

Here at Hard Money Mike, we have a few ‘rules’ that help you make those tough decisions. Not only do these guidelines help you make money as an investor, but they also make you more attractive to lenders. 

So what does a good deal look like?

1. Profit

It all starts and ends with profit.

Every deal should have a minimum of 10% profit for you. However, as a rule, it’s best to aim for 15% of the ARV. This means that the selling price is a minimum of 10%–15% higher than the ARV (After Repair Value).

For example, if the estimated ARV for a property is $200K, you should look for deals that will get you about $30K in profits.

You’ll need to keep in mind other final costs to make sure that 10%–15% actually ends up in your pocket.

2. Cost to Sell

How much is it going to cost to sell the property? Typically, you see costs somewhere between 4%–6%.

Part of that is real estate cost, but hopefully you find a good deal with an agent. You’ll also need to factor in closing costs.

3. Cost to Fund

Leverage costs money. Loans come with interest, and you’ll be using the incoming money from your deals to pay those off.

Typically, you can estimate that your money costs 5%–6% more than the amount of the loan itself.

What do All These Numbers Mean?

When we add together these estimates, we end up with a range:

19%–27% of the cost of your project will not be funded by any of your loans. These costs all come out at the end, but it’s very important that you don’t wait until the end to think about them.

Typically, lenders look to give you 70%–75% of the estimated ARV of the property. Lenders do this because they want to make sure you have accounted for all these other numbers.

You need to know your profits, what it’s going to cost to sell, and the cost of your money. None of these numbers are financed into your loan so they’ll need to come 1) out of the sale, or 2) out of your pocket. 

The Lender’s Perspective

Lenders want you to demonstrate that you understand the costs. If you can show that you have a plan to cover these final costs, lenders are typically fairly comfortable covering between 70% and 75% of the ARV.

You may find hard money loans willing to go higher, but if you’re looking at traditional loans, expect 70%–75%.

If you have the funds in your money bucket, the lower the loan, the higher your profits (and the easier it is to get that 15%!). Anything above 75% and it gets trickier for you to make money on a deal because you’re needing to focus so much of your money on paying back lenders.

Diving Deeper

Over the next few weeks, you can stay tuned on our website or check out our YouTube channel where we’ll be going over more tips on real estate investing for beginners.

Real estate is an investing game. It’s a numbers game. If you have some numbers you want to run by us, just reach out to Info@HardMoneyMike.com or fill out a contact card.

Our goal is to equip you with the tools and knowledge to help you successfully build wealth.

Happy investing!

How to Raise Credit Scores in 30 Days or Less

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Everyone in real estate investing knows the power of credit scores. But how can you raise credit scores quickly so you don’t miss out on deals?

The best part of real estate investing is that anyone from anywhere can begin building wealth if they know how to use leverage.

One of the biggest pieces of leverage in an investor’s toolbox is their credit score.

Your credit score can be the difference between a deal that makes you rich and a deal that puts you in debt. With a good score, you’ll likely find better terms, rates, and points.

However, if you’re struggling with a low credit score, what can you do to fix it? And how long is that going to take?

Identifying the Problem

If you’re using your personal credit card to cover the expenses of real estate investing, chances are you have a usage issue.

Your credit score is calculated based on the balance between two items: 1) available funds, and 2) how much of those funds you’re using (usage). If you’re constantly using all—or nearly all—of the available funds, credit companies see you as a risky investor. This lowers your score.

If this sounds like you, that’s great news! There are fairly painless ways to fix usage issues.

Unfortunately, if your score is low because you’ve struggled with late payments, there is no quick fix for that. Only time can remedy the damage caused by bad payment history.

A Quick Fix to Raise Credit Scores: Usage Loans

A usage loan pays off your credit card, transferring the balance to a private loan that doesn’t report to your credit score.

Many companies and individuals, including us, offer usage loans, and we’re happy to talk about your options at Hard Money Mike.

Usage loans have a near-instant affect on your credit score. You’ll see the change as soon as the next report processes. If you want to see how much your credit score could change if you pursued a usage loan, you can use tools on sites like Experian or Credit Karma.

If your score is low, and you’re convinced that the next deal will fix everything, here’s our advice:

Don’t play credit roulette.

Don’t put your credit score at risk while you wait for the next deal to go through. Get ahead by protecting your credit score with a usage loan.

A Long Term Fix: Business Credit Cards

Once you revive your credit score with a usage loan, what can you do to protect your score long term?

It’s pretty simple: Transfer your real estate investing to business credit cards.

Business credit cards (if you find a good one) won’t report on your credit score. Additionally, because their purpose is different, credit card companies sometimes reward high usage on business accounts even though they penalize private accounts for the same activity.

You still need to pay off these cards on time. But as long as you’re doing that, you protect your personal credit score from jeopardizing your deals.

To learn more about business credit cards or how to find the right one for you, check out our sister company, The Cash Flow Company.

We Can Help

If you want to explore a usage loan or have questions about how to raise credit scores, feel free to reach out to us at Info@HardMoneyMike.com.

We’re always happy to walk you through your options. Our goal is to help you find the right loans and solutions that fit your needs.

Happy investing!

Hard Money vs. Private Money Loans: What’s the Difference?

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Sometimes these terms are used in similar situations, but what actually makes private money loans different from hard money?

One of the most beautiful and attractive aspects of real estate investing is its accessibility.

Anyone can enter the game and create wealth, provided they understand their available options and use other people’s money (in the form of loans, etc.) to fund their projects. This is called using leverage.

The best leverage for each deal might be a little different. Sometimes you need to close quickly. Sometimes you need to prioritize low interest rates. 

Whatever the top priority, private money and hard money are tools to have in your investing toolbox.

Private Money Loans vs. Hard Money Loans

Hard money loans have been around for a long time, but recently we’re seeing a rise in private money loans.

Knowing the differences between the two can help you find the best deal for the specific needs of your project.

1. Credit Scores

  • Hard Money: Credit scores aren’t typically a factor. 
  • Private Money: Score based.

Instead of looking at your credit score, hard money lenders look at your financial history for things like bankruptcy, foreclosures, etc. 

Additionally, not only is hard money not determined by your credit score, but hard money loans can also be used to help fix your credit score (something that private money isn’t necessarily designed to do).  

If you have concerns about your credit score, check out our information about usage loans.

2. Flexibility

  • Hard Money: Super flexible and great for unique projects! 
  • Private Money: Less flexible, often better for larger communities.

If you have a project that’s a bit outside of the box, hard money is often the way to go since these loans aren’t restricted as much as traditional bank loans.

In contrast, private money tends to be best for projects that are a bit more “typical” in real estate investing. It can be tricky to get private money loans below $125,000, so if you’re looking for a fast, small loan, hard money might be a better deal.

3. Loan to Value

  • Hard Money: Up to 100% financing.
  • Private Money: Typically maxes out at 70% of the repair value and 90% of the purchase.

Sometimes you can find private money loans with great terms, but typically hard money can offer higher LTVs.

4. Markets

  • Hard Money: Local.
  • Private Money: National.

Private money has the advantage over hard money when you’re looking in larger communities. Most hard money lenders have smaller areas (or two or three states) they specialize in, and they like to stay focused on those areas.

5. Pricing

  • Hard Money: More expensive.
  • Private Money: Less expensive.

If you’re in a large city, and you’re looking for the best pricing, private money will typically be less expensive than hard money. 

It’s important to note that the difference in cost between these loans is often in the points, not the rate. 

Often, hard money loans are anywhere between 2 and 3 points, with loans around 6-9 months. In contrast, private money loans are often closer to 1-1.5 and offer longer loans of 12-18 months.

Which Loan is Better?

It depends what you need!

If you need a flexible, quick loan with higher LTVs that isn’t going to penalize you for a less-than-spectacular credit score, hard money is the way to go.

If you need longer terms, better points, and something that’s designed for larger communities and typical projects, check out private money loans. 

Explore Our Resources

Real estate investing is great, and both of these loans should be in your investing toolbox. 

If you want to explore a hard money loan, feel free to contact us at Info@HardMoneyMike.com. We’re always happy to talk through a deal or help you figure out what sort of loans are right for you.

You can also check out the free tools on our website or our YouTube channel where we offer investment tips and tricks. Our #1 goal is that you feel confident and equipped to succeed as a real estate investor. 

Happy investing!

How to Raise Your Credit Score with Hard Money

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If you’re struggling with knowing how to raise your credit score, it might be time to check out a hard money usage loan.

Real estate investing is all about creative wealth using available leverage (other people’s money in the form of bank loans, hard money, etc.) to make a profit. It’s an accessible and lucrative field for first-time investors. 

However, a bad credit score can change the game.

Especially if you’re looking for larger, traditional loans, a bad credit score can immediately disqualify you from consideration.

But there is good news! Hard money (sometimes called “private money”) can save the day. 

The Cost of a Bad Score

A bad credit score (anything below 670 is often considered “poor”) can lower the quality of deals you find. If they do approve you for a loan, a bank will likely ask for an additional 10-20% down. 

You might be stuck with higher rates on a DSCR loan.

At worst, you won’t be approved for a loan at all.

This is both frustrating and very expensive.

How do Credit Scores Work?

Your FICO score is essentially based off of 5 categories:

You’ll notice that the vast majority (over 2/3rds) of the score comes down to just 2 components:

  1. Payment History
  2. Amounts Owed (Usage)

If your score is low because of payment history, then there isn’t much we can do to fix that with a hard money loan. That’s a problem that takes time to resolve.

However, if your score is low because of the usage, hard money can provide a very quick fix that can raise your score in as little as 14 days.

What is Credit Usage?

Credit usage (that Amounts Owed section) measures the ratio of total money you could use with how much you do use. 

Essentially, if you have a total available balance of $1,000 and you’re constantly maxing out that credit card, then you have 100% usage.

Credit card companies typically like to see usage around 30%. If you’re new to the investment game and you don’t have constant cash flow from current properties, it can be really tricky to have optimal credit usage.

How to Raise Your Credit Score Using Hard Money

You can use a hard money usage loan to pay off your credit card. 

This lowers your usage percentage almost instantly which in turn boosts your credit score. Because hard money loans move quickly, you could see your credit score go up in only a few weeks—we’re only waiting for the next statement to be processed!

Once that credit score is back above 700, you shouldn’t have a problem getting your next necessary loan and getting a good deal.

You should also consider opening a 0% business credit card.

The Cash Flow Company encourages moving expenses to business credit cards. This protects those higher real estate investment expenses from reporting on your personal credit score. 

Reach Out if You Need a Usage Loan!

At Hard Money Mike, we offer secure usage loans for investors looking to fix their credit scores.

Also, make sure to check out our free tools. Our loan calculators in particular can help you find the best loan options for your projects. It’s important to shop around as you invest and create wealth.

If you’re looking to raise your credit score fast, reach out to us at Mike@HardMoneyMike.com, and we’d be happy to discuss a deal.