Hard Money Lending: 9 Things You Should Know

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What should you know about hard money lending before looking for your first deal?

The real estate investing world revolves around using other people’s money strategically to build wealth for you and your family. If you’re new to the table, it can be tricky to get Wall Street companies to back your deals, but hard money lending is a different game. 

If you’re new to real estate investing, chances are hard money loans (also called Private Money Loans) are going to be the key to your success. 

Here are 9 ways that hard money lending is a unique and great option for new investors. 

1. Hard Money Lenders Tend To Be Relational and Local

Most hard money lenders are relational. Hard money lenders are frequently either individuals or smaller companies, so personal connection really does matter.

They like to invest in their local communities in projects that will help build the local economy. Even if you’re a new investor, by building a good relationship with small, local lenders, you can still find the finances you need.

2. Loans Are Not Score-Based

Unlike large banks, hard money lenders aren’t tied to particular credit scores. 

You should still be honest with your lender, but the score typically matters less than the type of project and the LTV (loan to value).

3. Terms Are Not Based on Experience

In hard money lending, deals aren’t usually based on experience. Instead, lenders look closely at the individual deals. 

If a particular deal has a good chance of creating wealth, you’ll likely find an investor.

4. Hard Money Lending is Flexible

If you have a unique property or project that falls outside of what larger banks will back, it’s probably a good option for hard money.

Flexibility is one of the most important distinctions with hard money lending. If the LTV is good and that lender wants to invest in that area, you’ve got a good chance of making a great deal.

5. Hard Money Can Fund More

Hard money loans can actually fund up to 100% of your project depending on the LTV. 

If you’re strategic about the projects you take on, you can increase your leverage by choosing good properties and going through a hard money lender. 

6. It’s Fast!

Hard money lending is fast. 

Typically, you can close deals in days instead of weeks. Because the real estate market moves fast, this can be a great option to make sure you’re not missing out because of slow lenders.

7. You Can Do a Lot with Hard Money

You can use hard money for all sorts of things. From gap funding to purchasing costs to usage loans that raise your credit score, hard money isn’t limited to only one aspect of investing. 

It’s good to find multiple hard money lenders in your area because a lot of them have expertise in particular areas.

8. Use it to Pre-Fund Escrow

One of the great things about hard money is that you can use it to help get projects moving. Because escrow typically works as a reimbursement system, you usually need to personally fund your first (and sometimes second) escrow draw. 

Especially as a new investor, the first few escrow draws can be a huge strain financially. 

With the flexibility of hard money lending, you can use that loan to cover those draws. Then, once you’re able to access those escrow funds, you can pay off the hard money loan. 

9. Hard Money Lending Comes in all Sizes

As mentioned earlier, hard money lenders are sometimes willing to fund up to 100% of the purchase cost. 

They’ll frequently fund $50,000 or $110,000 loans whereas a lot of the big equity firms don’t really like this size loan. 

Time to Invest!

If you’re new to investing, remember that leverage is king. Leverage—the way you use other people’s money—is how you generate wealth and income.

Reach out and find the local hard money lenders in your community. 

We have a few tools on our website that can help you find resources in your area. Check out our location pages to find hard money resources in your area. You can also download our free Loan Cost Optimizer to help you compare different loan options.

As always, feel free to check out our YouTube channel or reach out to us at Info@HardMoneyMike.com for more information.

Happy investing!

How to Get Approved by Hard Money Lenders

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Knowing what hard money lenders look for is key to winning the real estate investment game.

Real estate investing is all about creating wealth and income by leveraging other people’s money. 

Hard money loans (also sometimes called private money loans) are a crucial part of that money.

What is a Hard Money Loan? 

A hard money loan is a loan based mainly on the property or the investment that you’re working on. It’s less focused on the investors themselves, as hard money lenders tend to look more at the property and LTVs (loan to value). 

Hard money lenders look for great deals. If a project is a good deal for you, you’ll likely find lenders willing to back you up.

Another benefit of a hard money loan is its flexibility. Hard money lenders allow higher loan to values and, depending on the property, sometimes will lend up to 100% of the total cost.

This is super important for new investors who need money to get started.

When to use a Hard Money Loan?

There are all sorts of loan options out there, but hard money is particularly useful in a few scenarios:

  • Closing quickly: Hard money loans are a lot faster to come by than traditional bank loans.
  • Unique Projects: Private lenders aren’t bound by the same restrictions as large firms.
  • Higher Loan to Value: If your deal needs a higher LTV, hard money can be the best deal.
  • Credit Score Trouble: Hard money lenders are more concerned with the value of the property than your personal credit score. You can also use a hard money loan as a usage loan to raise your credit score. 

How to Find the Perfect Hard Money Lender

Since hard money lenders are often smaller, private individuals or companies, it can take some work to find the right fit for you. 

If you’re starting with a Google search, know that local lenders likely won’t appear on the first page with the paid promotions from large banks. Click through a few pages of results to find what you’re actually looking for.

1. Look For Local Hard Money Lenders

Hard money lenders gravitate towards local markets in smaller communities. You can check out our location pages to learn more about resources we’re connected to in your local area. 

Finding local real estate investment groups can be a good way to start making connections.

Also, engaging with online forums like ones on BiggerPockets can help you find other investors and lenders in your area.

Local connection goes a long way in the hard money game, and you’ll need to take time to network in your area.

2. Create Relationships

Private money lenders are often very relational. 

Because of this, you’ll need to take time to call and talk to them. Make sure they know that you know what you’re doing.

Learn the language to help build their confidence in you and your project. 

Additionally, some lenders may even ask to see the property you’re asking them to invest in. Making sure you give them all the information they ask for is critical in your relationship with them. 

Similarly, just like they’re trying to determine whether you’re the right fit for them, you should also look at multiple lenders. The relationship between lenders and investors is a two-way street, and it’s important both of you feel confident about the deal.

3. Make Them Feel Comfortable

Remember that hard money lenders are typically individuals or small companies. Each loan is important to them.

Let them see your numbers. Let them see an example deal. Even if you’re just starting out, show them an example of potential loan to values, and be prepared to show your work.

The more you know about your contractors, purchase price, rehab costs, etc., the more you’ll ease their concerns.

Although it takes time to prepare this information, it can make a huge difference. This is your business, and doing that preparation shows your lenders that you’re competent at your part of the job. 

4. Make it Easy for Your Lenders

Finally, don’t make your lender chase you down to follow up. Have everything ready before they ask and pass it along early in the process.

Prepare a package ahead of time that has all the necessary information enclosed to the best of your ability:

  • Comps
  • ARV info
  • Scope and timeline of work
  • Team members
  • Contractors
  • Realtors
  • Insurance agent
  • Title info

The easier you make it for your lender, the more likely they’ll offer you a great deal.  

Show them that you know exactly what and how to break down a property and that the equity is there. This lets them know their loan is protected by a solid property with a good plan for generating income.

Questions?

Hard money lending is all about relationships. If you build a good relationship, you’re far more likely to find the lenders you need.

We have a few tools that can help you shop around for the perfect hard money loan. The first is our location pages. You can use these to find resources in your area.

The other tool we recommend is our free Loan Cost Optimizer download. It’s easy to use, and it can help you compare different lenders to find the best deals.

If you’re interested in a hard money loan or have questions about how to find lenders in your area, feel free to reach out to us at Info@HardMoneyMike.com.

How to Use Escrow for Your Real Estate Deals

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If you’re new to the real estate game, learning how to use escrow is a critical step towards success.

Everyone in the fix and flip game is likely going to encounter escrows.

A popular strategy is to use private (or hard money) loans. These can be helpful because they can fund up to 100% of your rehab and are super flexible.

The tricky thing (and where escrows come up) is that a lot of lenders require that you start the project with your own money, reimbursing you later through escrow.

This can become a problem for beginning real estate investors if they’re not prepared to pay that much on the front end. 

Where do you get the money? How and when do you actually access the escrow funds?

How Does Escrow Work?

Think of escrow as a reimbursement program. Lenders lock a certain amount in the escrow fund and you submit draw requests throughout your project.

You’ll likely need an additional $50,000 (from your own pocket) to get the project going to submit the first draw (essentially, reimbursement) request. In order to keep things moving, you should also try to have pocket cash for the second draw as well.

It looks a bit like this:

Week 1:

  • Put your own money in to start project
  • At the end of the week, submit your 1st escrow draw to your lender

The lender might take some time to go through their verification process, so you should prepare for a week two along these lines:

Week 2:

  • Lender begins reviewing 1st draw request
  • You keep moving forward with your project, paying with your own money bucket
  • At the end of the week, you submit your 2nd draw request
  • Lender reimburses 1st draw and begins reviewing 2nd

Hopefully after the first two draws, you won’t need any more out-of-pocket cash. 

Also, remember that those initial draws are covered, you just need the money up front, and then they reimburse you out of escrow. 

How to Get Initial Funds to Access Escrow

You need a full money bucket – a supply of personal funds you can use for those out-of-pocket expenses.

How can you make sure you’re money-prepared before you get into this? 

1. Business Credit Cards

If you can, get business credit cards. Business cards are a great way to protect your personal credit score. Also, if you’re smart about choosing a 0% card, you could go through the whole process without paying any additional interest.

If you have questions about setting up your business credit cards, check out The Cash Flow Company, our sister company that specializes in money-preparedness.

2. Lines of Credit

We recommend business lines of credit or, at the very lest, HELOCs on your home. The most important thing is to keep your projects going, and having a variety of lines of credit is going to help.

To learn more about bank lines or HELOCs, check out this article from The Cash Flow Company.

3. Other People’s Money (OPM)

You can look to family, friends, neighbors, acquaintances, anybody out there who’s looking to put some money to work. 

Even smaller amounts like $25,000 will make a significant difference, and you can offer a better rate than larger banks.

OPM is a crucial piece of filling your money bucket for those initial draws, and it’s also a relatively safe investment for people around you.

4. Gap Funding

Gap funding refers to any loan you get to fill a gap in your project. 

Lenders still look for security in the loan, but if you’re able to show security, gap funding is another possibility for paying for those first escrow draws. 

Hard money loans can often be used as gap funding, and you’re welcome to reach out to use if you want to discuss a deal with us at Hard Money Mike.

You’re Ready to Use Escrow Funding!

Having a full money bucket at the front end makes a huge difference in your success as an investor. Markets move fast, and stalled projects can end up costing more than they’re worth. 

These strategies can fill your money bucket and help you access escrow quickly and successfully.

If you have any questions, feel free to reach out to us at Info@HardMoneyMike.com. You can also contact our sister company at Info@TheCashFlowCompany.com to discuss business credit cards or other aspects of being money-ready.

Also, check out the free tools, calculators, and information on our website. Our only goal is to help you be successful on your investment journey.

Happy investing!

BRRRR Strategy: Successful Real Estate Investing with Hard Money and DSCR

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How can you combine a BRRRR strategy with hard money and DSCR loans to win in the real estate game?

It’s amazing that there are options out there that let you build a real estate portfolio using little to no money. Using the BRRRR strategy with resources like hard money and DSCR loans lets even new investors get ahead. 

Using BRRRRs, hard money, and DSCRs together lets you do your fix and flips with little to no money in. 

Although this takes work, it is a tried-and-true method of generating wealth with solid resources and hard work. 

What is the BRRRR Strategy?

BiggerPockets launched this acronym a few years ago. BRRRR (Buy, Rehab, Rent, Refinance, Repeat) centers around fixing and flipping discounted properties.

BRRRR is all about buying properties with built-in equity that can be renovated to raise the value. We’ll likely start seeing more discounted properties in 2024 as foreclosures rise. This will provide a perfect landscape for BRRRRs. 

We recently helped a client buy seven properties this year thal all fit in these guidelines. They bought the properties with private money, and they’re refinancing them with a DSCR product. 

But it all starts with the Buy: look out for discounted properties. Yes, it takes work to rehab, rent, refinance, and repeat. However, by using the BRRRR strategy, you and clients like the one above are able to maximize profits in your real estate investment journey. 

Where Does Hard Money Come into Play?

Beginning the BRRRR process with buying a new property typically requires a lot of money. But don’t panic!

At the beginning of the article, we told you that you could use the BRRRR strategy with little to no out of pocket costs, and we’re about to tell you how.

Hard money loans are the key to making it all happen. Hard money is super flexible so you can use those loans to not only purchase, but also rehab or even cover closing costs. 

At Hard Money Mike, we specialize in hard money loans.

Hard money lenders typically look at your loan to value (LTV). It’s great if your LTVs can be close to 75%, but you’re welcome to reach out if you have any questions or concerns about whether you might qualify for a hard money loan.

Using DSCR to Refinance Your BRRRRs

Getting your property refinanced is a crucial step in the BRRRR strategy. 

DSCR (Debt Service Coverage Ratio) was specifically developed for real estate investors. The benefit of DSCR is that lenders aren’t concerned with your business’s income. 

Instead, they look at the specific property to see if it has positive cash flow. If it does and you have good credit, you’ll likely be able to refinance your hard money loan 75%-80% of the current appraised value.

If you bought at a discounted rate but rehabbed the property, the new value should be closer to everything else in the neighborhood.

BRRRR Strategy + Hard Money + DSCR = Success!

You need all three of these to really be successful at building your real estate wealth from little to no money.

Beginning your real estate investing journey can be a slow process. The first year, you might only complete the BRRRR strategy for one or two properties. 

But the longer you do this, the easier it gets. As you understand more, you develop contacts, and everything gets easier. 

Realistically, if you’re looking to build wealth from real estate investing but don’t have extra cash on the front end, you could likely use the BRRRR strategy on up to ten properties over the next three years.

By using the resources available (like BRRRRs, hard money, and DSCRs) you can build up your portfolio and wealth with hard work.

Time to Make Some Deals

Remember, it all starts with buying discounted properties with hard money loans. Then, keep using hard money for rehab, and refinance with DSCRs. 

If you want to learn more, we have a ton of free tools that can help you in the real estate game. 

If you have questions about hard money or want to discuss a deal, just reach out to us at Info@HardMoneyMike.com. 

You can also check out our YouTube channel for more real estate investment strategies and tips. 

Happy Investing.

Private Money Loans: 5 Tips to Find the Safest Loan

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What should you look for when considering private money loans?

Real estate investing is one of the most lucrative markets out there. It’s still creating millionaires and opening the door for families to build generational wealth. But how can you get your foot in the door?

Especially if you’re a newer investor, we’re here to help you figure out how to do this by finding the right lender for you.

Why Private Money Loans? 

Private money loans—also often called hard money loans—are particularly helpful in real estate investing. These particular loans are more flexible which make them perfect for unique projects or projects in rural areas that larger banks may see as less valuable.

If you’re in real estate, you understand that leverage is king. Hard money is an important part of that leverage. However, even as you’re looking for private loans, make sure you shop around so that you can negotiate the best deal possible.

But how can you go about finding a good private money loan? 

1. Shop Around for Loans

No matter where you are in your real estate career, you should always shop around. Even if you’ve had a good experience with a lender in the past, still look around to see if you can find better deals. 

Talk to different lenders. Especially with hard money, each lender will typically have a specialty. This means that each project you do might fit best with a different lender.

This can feel overwhelming, so we’ve created a free tool called the loan cost optimizer. It’s easy to use and can help you find a better deal for your project.

2. Ask For Referrals

If you ask Google to find a good lender, two things are going to happen: First, you’re overwhelmed by the sheer number of options. Second, the ones you’re most likely to see will be paid promotions or paid advertisements.

One of the best ways to avoid this is by asking for referrals. If you know other people in your area who are in the real estate game, ask about their experiences with their lenders. 

Did they charge what they said they were going to charge? How accurate was the lender’s original quote? Did they close on time? Was the contract solid?

Finding a good lender is about more than the on-paper costs. You want a lender who’s reliable and trustworthy, just like they want reliable clients. 

3. Check the Reviews

If you can’t get a referral from someone, the next best thing (and something you should do regardless) is to check the reviews.

Platforms like Google have made it super easy for people to leave reviews for companies. Check out what people are saying. 

Although reviews aren’t always entirely accurate, if a private money lender has a lot of negative reviews about trying to change the terms of a loan, that could be an issue. 

4. Get The Private Money Loan Details in Writing

You don’t ever want to be stuck in a situation where you thought you had a specific agreement, but it doesn’t come through because it was just a verbal comment.

Make sure you get a clear terms sheet that outlines everything the lender said. If you have other important conversations, ask to get an outline of that conversation in writing. Even an email works!

5. Review All Paperwork Carefully

If possible, find a lender who will provide the settlement statement a day or two before closing so you don’t have any surprises. This gives you time to review the paperwork carefully before finalizing the deal. 

Always make sure you know the default rates and other potential charges that might show up. Even if you don’t expect delays in your projects (no one does), read all that fine print carefully so you know the facts.

If You Want Additional Help… Ask Us!

Here at Hard Money Mike we specialize in private money loans. These loans are flexible and perfect for investors working in smaller communities, but it can take some time to find the right loan for you.

If you want a quote, have questions, or want to learn more about private money loans, reach out to us at Info@HardMoneyMike.com. 

Get Ready for Real Estate Opportunities in 2024

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Real estate opportunities are coming in 2024, and we want you to be ready!

The stats are clear: it’s a great time to be a real estate investor. So how can you prepare your money to take advantage of the market?

Let’s start with looking at why this opportunity is coming and how it’s leading to a beneficial market for investors. Then we’ll dive into what you can do to be prepared.

Rising Debt Levels and Stress

Rates are rising, and with that, consumer debt, credit cards, and student loans have also increased. According to the Fed, they’ve all hit a new high at $17 trillion in consumer debt. 

With more debt out there (and higher balances), consumers are under more stress as banks look for even higher credit scores. Because of this, even though home prices are stabilizing—potentially even going down—a lot of people can’t tap into that equity.

Implications for Real Estate Investors

This might sound like bad news. However, if you’re a real estate investor who’s prepared for these changes, this is going to create some real opportunities in the near future!

As consumers credit cards, rates, payments, and stress rise, a lot of people are going to be vacating their properties. 

We can help those people who are in need of relief to take over properties and create the generational wealth and the mailbox income they need.

We didn’t create the problems these people are facing. But through smart investment and coming alongside new investors, we can turn the situation around.

Key Statistics to Understand the Opportunities

Consumer Debt: We already mentioned the $17 trillion in consumer debt.

Credit Card Delinquency: According to the Fed, over the past six quarters, we’ve seen a rise in credit card delinquencies. While the numbers aren’t astronomical, they are rising. If rates keep going up, we’re going to start seeing more defaults.

Mortgage Delinquency: Credit cards will also stress people’s money which can trickle into mortgage delinquencies. Although mortgage delinquencies haven’t shot up yet, we can expect a boomerang effect in about six months because of the rising rates of consumer debt. 

How Does This Affect Consumers?

Let’s look at an example.

Let’s say a year and a half ago, someone had a credit card balance of $10,000. Interest rates were low. We’ll say they had a 14% interest rate, and they maintained that $10,000 balance throughout the year. So that would mean they have about a $1,400 payment of interest to the credit cards over that time, or just a little over a hundred dollars each month. 

Today, interest rates and balances have gone up, while credit scores have gone down. 

Now, for the same consumer, interest rates are likely to be closer to 29%. Instead of paying $1,400 for the year, that rate has more than doubled at $2,900 or just under $250 a month. 

Those numbers are pretty small in comparison to what a lot of consumers are facing: $30,000-$50,000 in credit card debt, car payments, student loans.

Additionally, most people’s income isn’t rising as fast as their interest payments. 

This Creates Real Estate Opportunities… If You’re Prepared!

If real estate investors take these signs seriously, there’s a huge opportunity for business. But you have to start getting your money in line now.

1. Find hard money.

Hard money is extremely versatile. Because of this, it’s great for when you need to make quick deals or close in days instead of weeks. 

Hard money can also offer a higher loan to value which is perfect for the market we’re looking at in 2024. If you want to learn more about hard money, check out our recent post on all the different things you can do with hard money.

2. Raise your credit score.

In order to take advantage of the coming opportunities, you need to make sure your credit score is in line. 

Lenders aren’t always going to cover everything, so you need credit cards in your money bucket to cover those other expenses.

3. Fill your money bucket.

Where does that money for your money bucket come from? 

There are a few ways to fill your money bucket. One of the most important ways to make sure you have funds is to use business credit cards whenever possible. By separating your personal credit from your business credit, you protect your credit score and can keep it higher. 

If you need help settling personal credit cards to fix your score, our sister company The Cashflow Company can help with that. 

In addition to credit, you can fill your money bucket with HELOCs, other lines of credit, or other people’s money. Getting friends and family to invest in your projects often gives them a better return. It also ensures you have the funds to work with while your lenders are still determining your approval.

4. Partner with a reliable lending company.

Companies like us work really well with these types of real estate opportunities. With hard money, you’re able to take advantage of these moments because you won’t have to wait for slower lenders. 

Similarly, if you’re in a rural area or smaller town, you might have trouble finding a good deal with Wall Street-type lenders. Large lenders often add additional rules and regulations to rural areas, whereas hard money is flexible no matter who or where you are. 

It’s important to find the right lender for your project.

If it’s unique and you’re looking to close quickly, look at hard money loans. Hard money is going to be more important in the coming real estate wave than ever before.

Don’t Miss Your Opportunity!

In the next year, look out for real estate opportunities. This is your chance to create that generational wealth that can change everything. 

Our whole goal here is to make sure you’re successful. 

We have tons of free tools on our website, so make sure you check those out as you’re preparing for 2024. They’re free and easy to use!

Again, if you have questions about the next wave of real estate investing or want to see if a hard money loan is right for you, send us a message at Info@HardMoneyMike.com.

Happy Investing.

What Can You Do With A Hard Money Loan?

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Hard money is so versatile! Understanding how much you can do with a hard money loan can open doors for your projects.

As long as the deal you’re looking for is backed by real estate for investment or business purposes, hard money is one of the most flexible options out there.

Unlike a lot of other options, hard money lenders aren’t confined by the same restrictions as traditional loans. This means you can use hard money for a wider variety of real estate investment projects.

Fix and Flip Hard Money Loans

Hard money loans work exceptionally well for fix and flip projects. Here at Hard Money Mike, we specialize in hard money loans for fix and flips. 

Hard money loans can often be specialized for your individual project which makes them ideal for real estate investing and renovations. 

Similarly, if you’re looking to renovate and rent (instead of sell), you can look for a hard money loan to help cover the cost of rennovations.

Gap Funding with Hard Money

Gap funding is a term used for a variety of loans that cover the “gaps” in a larger loan. This is often simple to find through hard money loans, provided there’s good equity in the deal.

One type of gap funding is bridge loans. If you need temporary financing or are looking to buy one property before selling the other, look for bridge loans from hard money lenders.

Similarly, gap funding also covers usage loans. With usage loans, lenders pay off the investor’s credit cards which helps their credit score go up. This lets real estate investors get the funding they need to focus on their project.

We also strongly encourage our investors to have a separate business credit card to keep their scores high.

Project Completion Loans

If a property is sitting stale or taking too long to get money out of escrow, hard money loans can play a huge role in project completion. 

The faster you complete your project, the lower your overall project cost. Also, the better chance you have of hitting a good selling window in the market.

Land Purchase and Development

The flexibility of hard money can work well for investors and business owners who want to buy property to develop. While big companies are often less interested in rural areas, hard money lending doesn’t have those same hang-ups.

Additionally, because hard money lenders can adjust for the client’s needs, it’s easier for you to buy large plots of land to later split into multiple parcels. It’s also easier to use that money for things like modular home development.

A good hard money lender will be able to help you get money in order to purchase and begin development quickly.

Hard Money Loans for Business Needs

You can use a hard money to buy out a partner who owns real estate or to expand their business by buying equipment or other needs. 

If you’re a business owner, you also might be able to use a hard money loan to cover payroll expenses thanks to its flexibility. So long as some level of real estate is involved, hard money lenders are able to support.

First Time Investors or Poor Credit Scores

If you’re a first time investor looking for a good deal, hard money is likely the way to go. 

Depending on how good the deal is, hard money lenders will sometimes give up to 90% to 100% even if your credit score is less than 600.

Hard money lenders are able to be more understanding regarding credit scores and are often more willing to lend to people with lower scores. This in turn really helps out newer investors who are trying to build capital.

Unlike large Wall Street-type companies, hard money lenders care more about the loan to value and the property’s value.

Hard Money for Unique Projects and Situations

Hard money is ideal for unique situations and real deals that can make investors money. 

If you find yourself stalled in the middle of a project and pressed for money, hard money lenders are flexible. Even in the middle of a mess, a good lender will try to help you find a solution.

Refinancing during a project can be tricky, but it’s significantly easier with hard money.

Similarly, strange situations happen all the time that can leave investors high and dry. If a bank is bought out and your loan is due when you’re not ready, hard money loans can bail you out.

Hard money also works well for mixed use commercial projects. 

Wholetail and Transactional Deals with Hard Money

If you’re looking for a short term wholetail deal, hard money works well. Hard money can even work for loans as short as 30 or 60 days. 

Transactional deals refer to when you’ve found an amazing deal and you plan on buying and selling within a week.

Hard money is perfect for those kinds of deals because they often have a higher loan to value than private lenders like.

The Benefits of Being Outside the Box

Hard money lenders don’t have a box we need to fit into which lets us help you out in a wide range of situations. 

Especially in 2023, banks are walking away from certain deals which makes hard money even more important.

If you’re interested in looking at more traditional loans, check out The Cash Flow Company. However, if your project is outside of the box, hard money might be the way to go.

If you have questions or want to talk about your project, contact us at Info@HardMoneyMike.com.

You can also check us out on our YouTube channel.

Happy Investing.

Hard Money Loan Requirements Explained

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Understanding hard money loan requirements is the first step in finding the right lender for you!

Before you get started on your fix and flip, you need to know a few things:

What does your lender look for? 

What do you need to know about each project before applying for a hard money loan? 

The more you know, the better deal you’ll be able to find.

What Do Hard Money Lenders Look For?

Lenders look at a lot of things when determining deals. It’s important to have details for each piece of your project so you can make sure there aren’t any delays in your work.

ARV

ARV (After Repair Value) is a critical component when calculating a hard money loan. 

Hard money lenders look at the projected value of your property. By looking at comparable properties (comps), lenders estimate the projected value based on the work you plan to complete. 

Scope of Work and Budget

Similarly, lenders look at the scope of the work you plan to put into your project.

What renovations are you planning? What is your budget? Having clear answers to these questions helps the lender determine what exactly you’re going to need to put into the project in order to have a higher ARV.

Your lender will also look at the purpose of the project. What is your ultimate goal? This lets lenders estimate the profits and the LTVs when you’re figuring out a deal.

Exit Strategy

You need to have an exit strategy. Are you selling, refinancing, something else? 

Having a clear exit strategy demonstrates your ability to manage the project well and follow through with generating returns.

Specific Loan Amounts

How much are you looking to borrow? Do you want the full amount or just partial? 

If you can put some of your own money into the project, you’ll need a clear idea of how much of that goes towards the purchase price vs. renovation costs. 

Since timing is so important in keeping your project moving, you want to know upfront if you’re putting your own money in escrow for repairs or relying on hard money loans for those costs.

Timeline

How long is your project going to take? The longer the project takes, the more important it is to buy lower to ensure you’re able to have higher profit margins so you can pay back your loan. 

Interest, taxes, insurance, and even HOA fees add up every month you hold your loan and work on your project. 

The faster you can turn your project into something that is making you money, the less risky you are as a borrower.

Hard Money Loans: Profit Expectations

Ultimately, estimating profit revolves around three things:

  • ARV (After Repair Value)
  • Purchase Price
  • Renovation Costs

Lenders typically max out at 70% to 75% of the ARV, but LTVs (Loan to Value) can also affect those numbers.

If you estimate your ARV early on, you can calculate what money you have to put into the project before sending it to lenders. This lets you propose a more detailed plan which can help you find a better deal.

You can use this free tool to help you calculate those amounts quickly and easily. 

Does Your Project Meet the Requirements?

We want to make sure your project is profitable and able to meet hard money loan requirements. 

If you have a deal you want us to look at, we’re more than happy to help! You can always reach out to us at Info@HardMoneyMike.com.

You can also check out our YouTube channel for more information about how to successfully navigate your fix and flips.

Happy Investing.

Hard Money Loans for New Investors

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Hard money loans open doors for newer, smaller investors who are looking for a way to enter the real estate game.

Our goal is to make it as easy as possible for new investors to find the right information so they can be successful.

What are hard money loans? 

Hard money loans are short-term asset-based loans secured by real estate. These loans are typically provided by private investors, small companies or individuals in your local area. 

The main advantage of hard money is they provide quick real estate financing based mostly on the asset and not on your credit score. 

Hard money loans can be used for many things:

  • Funding a fix-and-flip
  • Financing the front-end of a BRRRR project
  • Overcoming credit limitations often experienced by new investors
  • Purchasing land for development
  • Funding some construction projects

Pros of Hard Money Loans:

1. Speed

Whereas Wall Street companies or banks may take two to four weeks, getting approved for a hard money loan typically takes five to seven days.

Speed is critical in investing, and quickly getting your money upfront is crucial in the real estate game.

2. Upfront Financing

Hard money loans also give you money upfront. This allows you to get your escrows out to start the project. Most large companies want you to put money in first. This can be a particular problem for new investors, and hard money lets them get their foot in the door. 

3. Flexibility

Large companies often have very strict lending criteria. If your project is unique, if it’s outside of the box, hard money lenders are more likely to consider it.

4. Higher Financed Amounts 

If you find a deal that has a good loan-to-value ratio, hard money lenders may lend up to 100% of the financing. This lets you keep more of your own money in your pocket and use the lender’s funds for your project.

5. Property-Focused Approvals

Finally, approvals for hard money loans are mainly based on the property itself, the exit strategy and the planned renovations or improvements. Hard money is often a good fit if you’re an investor with limited credit history or a unique property or area.

Cons of Hard Money Loans

1. Higher Costs

While interest rates on hard money are typically similar to other lenders, costs can be anywhere from 1% to 1.5% higher. However, faster closing times often offset the higher cost and can get you better deals than Wall Street companies.

2. Shorter Terms

Typically, hard money lenders offer financing ranging from six to twelve months. Therefore, if you’re looking for something longer than twelve months, Wall Street companies or a local bank may be a better fit. 

3. Limited Availability of Hard Money

Additionally, it’s important to remember that most hard money lenders are individuals, small companies, or private institutions. These lenders only have a finite amount of money to lend. It’s often necessary to build good relationships with local hard money lenders to ensure access to funds.

Hard Money Resources for New Investors

It can be tricky to determine what option is best for you. Because of this, we’ve compiled some resources to help you shop around for the right fit for your project.

Sites like Connected Investors help you network with other people in the business. Get plugged in with your local realtors, wholesalers, and lenders. Talk to other people in the industry to make sure you’re getting the best deals. 

To help you shop around, we also have a great tool called the Loan Cost Optimizer that helps you find the good lenders. It’s free to download and to use!

If you’re still not sure if hard money loans are right for you, no problem! Check out the Cash Flow Company website or YouTube channel to learn about other, more Wall Street-style options that have the same personal connections as hard money loans. 

Additional Questions and Research

Hard money is a very important tool, especially for new, small investors. However, you should always shop around, look around and talk to other experts so you know your options. Also, experts can help you better understand the terms and conditions of hard money loans so you know exactly what you’re getting into.

If you have questions about hard money loans, contact us and we’ll be happy to help you out!

Additionally, you can check out this video on our YouTube channel.

How Escrow Funds Can Finance Your Project’s Rehab

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What are escrow funds and how can you use them to get ahead of the game?

If you’re looking to finance property fixes, understanding how to leverage escrow funds effectively can make a huge difference in the success of your real estate investment endeavors.

What Are Escrow Funds?

Escrow funds are the funds set aside by lenders specifically for the repair or renovation of a property. 

Lenders can give up to 100% of the total repair cost. This escrow fund slowly repays you as you work on renovations. The only catch is that you need to put down the first 10-20% on the purchase price and begin the project before receiving reimbursement.

Securing and Using Your Funds

The best part about escrow funds is that they can fund up to 100% of the project. But how and when do you access those funds?

Each time you finish a portion of the work, you must submit a draw request. This involves providing documentation (such as photographs or on-site inspections) of the completed work. You’ll also need to submit invoices and proof of payment for the contractors involved. 

Once the lender has evaluated the progress, they release the escrow funds to you.

Potential Challenges with Escrow Funds

One common issue is that many investors lack the necessary upfront funds to kickstart the project and cover initial expenses. 

Starting a project often requires ordering materials, making down payments to suppliers, and coordinating various tasks, all of which can deplete your available funds. However, escrow funds aren’t reimbursed until the work is completed, creating a potential cash flow problem.

To fix this, it’s best if you have at least 20 to 30% of the funds for the repairs in your own pocket or, as we call it, in your own money bucket. 

This buffer allows you to begin the project without only relying on escrow funds. That way, by the time you’ve finished the first project and can do the first draw, you can freely move onto the second draw.

Keeping your project moving forward is critical in a quickly moving market.

How to Put Money in Your Bucket

Escrow funds are great, but they don’t give you the money upfront. In order to begin a project, where can you get the initial finances to fund the initial payments?

  • Credit Cards: Business credit cards are excellent to get projects started. 0% credit cards are even better to buy the materials that you need to pre-order. 
  • Paying Contractors Directly: If you don’t know how to do that, just email us and we’ll let you know how. It’s even better if you can pay vendors with your business credit cards.
  • Get lines of credit and E-locks on properties.
  • Loans from Family and Friends: You can often find family or friends who are willing to invest in your project. They’re going to get a good return on their investment, and your project gets the initial funding it needs.
  • Loans from Private Lenders: Companies like Hard Money Mike are sometimes willing to provide up to 100% in escrow funds. Look for private lenders who provide flexible financing solutions that help keep your projects from stalling.

How We Can Help

By collaborating with lenders like us who understand the unique needs of real estate investors, you can ensure a smoother experience and avoid unnecessary delays that may result in higher costs.

If you have questions about escrow funds, contact us and we’ll be happy to help you out!

You can check out this video on our YouTube channel.