How to Save a Stalled Real Estate Project

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A good deal can still create a situation with a stalled real estate project. Here’s how to save it.

One of our favorite loans is the type that fixes a stalled project.

Stalled real estate projects most often happen when:

  • You run out of money before you run out of work to do, so the house can’t get on the market.
  • A refinance on a flip doesn’t work out, but the original high-interest loan designed for the short-term loan is racking up payments.

This situation accumulates interest, taxes, and other carry costs that you were not anticipating.

We love saving these stalled real estate projects. We don’t care if our loan is in second, third, or fourth position, as long as we see the deal coming through.

Let’s go through a couple examples of times we’ve recently helped clients with stalled real estate projects.

Funding the Escrow on a Stalled Real Estate Project

For this client, we funded him money in escrow to fix up a property.

He had another lender first. It was a big, national fix-and-flip lender who had a lot of money sitting in escrow for him. But, they wouldn’t release any money until he got his other properties finished first.

This client had a lot of other properties going at once, so he didn’t have the cash flow to fund this one. He also didn’t want to sit on his new property, waiting until his lender decided to give him his cash.

After four months of fighting, he decided to get a loan through us instead. We were able to fund the whole thing. We used a lien on another property of his properties to fund the whole escrow.

Now, he’s able to get this property done and on the market in time for spring. Once he sells, the other lender will release his funds, and he’ll be able to pay us back.

Funding an Over-Budget Fix and Flip

One of the most common stalled real estate projects we see: a fix-and-flipper runs out of money.

  • The budget was too low to begin with
  • The flipper got priced out of material and labor costs.
  • An expensive surprise was found in the house that wasn’t accounted for in the original budget.

We had a client come to us recently in this exact scenario. He knew he needed an extra $20,000 to $25,000. He wasn’t completely sure which.

He’s hoping it’s only $20k, but we gave him a loan for $25k anyway. This allows him to:

  • Not piecemeal a budget (getting a couple thousand funded here, a couple thousand there, etc).
  • Finish the project faster.

Now, he won’t miss the springtime market.

Why We Do Loans on Stalled Real Estate Projects

We’re glad to help real estate investors when money for projects falls just a bit short.

Anytime you have a good project or a good loan-to-value, us lending to you makes a win-win for everyone.

Need a small loan to finish a stalled project? Reach out to us at Info@HardMoneyMike.com, and we’ll see how we can help!

Home Run

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From start to finish, Evan really hit a home run with this one. Evan, one of our most esteemed sluggers when it comes to fixing up homes, saw this house and was immediately determined to get it out of the bush leagues and into the Big Leagues.

 

The people selling the house had really let it fall to pieces, and the purchase price was set at $169,000, which was below market at the time. There was some interest, but because of how much work needed to be put into the home, Evan came out on top with the bases loaded.

Rounding First

Evan had to start at the bottom with the foundation. There were cracks in the concrete throughout the home, which hadn’t reached the walls yet, but would have if left much longer. He dug tunnels under the home to access the support beams, then placed foundation repair pilings under each major beam. He lifted the home to the correct level, installed support cylinders under the beams, and shimmed them to the proper height.

Rounding Second

Next, he moved on to the floors and walls. The entire house needed new floors, including carpet, hard wood, and laminate. For both the floors and the walls, he kept his color theme neutral and went with grays and browns throughout the home, so as to make the home able to flow with any interior design that the eventual new homeowners would want.

Rounding Third

As he was nearing home base at this point, he had some last-minute touchups that were in desperate need. The kitchen needed new cabinets and countertops, and the bathrooms needed new countertops and sinks. He also spruced up the landscaping around the home to really make the house look sharp from the outside in.

Bring it Home

Evan really was the “cleanup batter” for this house. The bases were loaded – the house needed a lot of work. And with a full count staring him down.. BOOM! A dinger! A bomb! A Moonshot! He slammed it out of the park and brought it home strong. He ended up selling the property for $299,900 to a very eager couple excited to grow their family in that house. Nothing better than a Grand Slam to help bring this house into the Bigs.

 

Do You Need a Hard Money Loan?

With hard money loans, it’s very important to shop around. Every hard money lender will offer a slightly different type of loan, with slightly different requirements.

There is a loan that is perfect for your credit, your plan, and your property. You just have to find it.


Contact us for a Hard Money Loan

Check us out on YouTube

Hard Money Mike funds loans in Colorado, Oklahoma, and Texas.

Why You Need Hard Money in 2023

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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. 

Happy Investing.

3 Reasons Why You Need Hard Money for Your Investments

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Not sure about hard money loans? Here’s why you need hard money as a real estate investor.

MYTH: hard money always costs more than bank financing.

Over the last year with the fed raising rates, banks’ interest rates have come within 1% of where hard money is. Also, there are advantages hard money has that other financing doesn’t that can end up saving you money overall…

Here are the top 3 reasons why you probably need true hard money for your real estate investments.

1. Flexibility

Every other type of loan – from banks, credit unions, or big private money institutions – only comes within a very strict box. But not hard money.

Hard money is based on one main criterion: the real estate itself. As long as there’s a good property to back you up, hard money lenders will work with you under many circumstances.

Why You Need Hard Money: Splitting Land Example

For example, we helped our client Sam with a deal. He bought a small commercial property with some land next to it. He plans to split the land, divide it into lots, and sell the lots.

When he does sell the individual lots, he’ll begin paying off the hard money loan. We’re working with him to recast the loan as he pays the lots off.

Hard money has this flexibility, while Sam may not be able to get this project done with traditional lenders.

Why You Need Hard Money: Buying Assets for Your Business Example

As another unexpected example, we helped another client who was buying a dump truck for their concrete business. They needed $200,000 to buy the trucks at auction, then they’d be ready to pay it back in a couple of months with the new revenue the truck would generate.

However, they didn’t have $200k in cash available. What they did have was a piece of real estate, so we were able to put a lien on it and help them with the loan.

It doesn’t matter if it’s a first lien, or second, or even third. As long as the deal makes sense, a true hard money lender will look at it.

Why You Need Hard Money: LTVs

The best case scenario with the loan-to-value from other lenders will be 90% of the purchase price and 100% of the rehab.

True hard money, on the other hand, will always use the ARV on a fix-and-flip style property. Most hard money lenders will do 75% of the after-repair value, plus rehab costs.

We have flexibility because we look at the property and the exit strategy, and we take deals based on the likelihood of you and us both being successful.

True hard money is what you need when you need flexibility.

2. YOUR Requirements

Other lenders have a long list of requirements for you. Such as:

  • Good credit score
  • Past experience in real estate
  • A certain amount of reserve money

The beauty of true hard money is it’s based mostly on the property.

Hard Money & Credit

We don’t care whether you have a 600 or 620 score. Your credit score will not determine your loan-to-value, rate, or fees. All those factors are more based on the property.

Yes, we will look at your credit. We want to make sure you’ll pay us back, but we also know that, in this industry, a lot of credit scores are downgraded just because of usage.

Many real estate investors use their credit cards for projects, driving down their credit scores. We understand that’s how you have to run your business. We don’t believe it’s fair to judge whether we should lend to you based on high credit usage. 

Hard Money & Experience

Most lenders require you to have three to five complete transactions over two years in order to give you the highest loan-to-value.

With us, it really depends on the deal. We’ve now done three loans for an investor who came to us with zero investment properties under her belt.

The deal was so good: she could buy the property, rehab it, and still be under 70% ARV. We knew she’d have plenty to pay off the loan whether she sold it as a flip or refinanced it into a $200+ cash-flowing rental.

If you don’t have experience but do have a great deal, then hard money is your option.

Hard Money & Reserves

Big investment firms that do private lending and banks always require more money upfront, in both down payments and reserves.

We recently helped a client in Texas where the only thing stopping the private money lender from lending to them was the reserves. They were just two months shy of meeting the requirements. 

But we don’t really look at reserves. Once again, we’re looking at the property. Do you have the funds to finish the property? Is the property such a good deal your reserves don’t matter? That’s what we’re going to look at. 

3. Speed

The third reason you need hard money is speed. 

With hard money, you can close…

  • Without an appraisal
  • In days instead of weeks
  • On unique properties that would otherwise need extensive underwriting

Why You Need Hard Money to Close Fast

We had a client looking at a $330,000 property. He bid just $300k, and there were 6 other bidders. But, he offered to close within 10 days. The seller took his offer because of that.

In his case (and for many of our clients), the savings they get from closing fast more than cover any additional cost they spend in interest or fees for the hard money loan. Essentially, this client got his property with free money.

Why You Need Hard Money: Finding the Best Hard Money Loan

Flexibility, more relaxed requirements, and speed. This is why you need hard money for your real estate investing career.

But as with all lenders, it’s important to shop around for the cheapest deal on rates and fees. To help with this, download our free loan cost optimizer here. It’ll help you find out which loan is truly the cheapest for you.

Have more questions about hard money? You can reach us at Info@HardMoneyMike.com, or check out the resources on our YouTube channel.

Happy Investing.

The Best Seat in the House

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The “best seat in the house” is most commonly known as having the best seat in a theater. But for one of our flippers, her goal for every house she flips is to leave it with the new owners having The Best Seat in the House. She says that this spot in the house, which is different for every home, defines the home and is the point at which she starts and finishes her renovations. As we love hearing her say, “It’s the heart of the home”.

 

To her, flipping a house isn’t just about the renovations and the fixes. It’s about the overall improvement of the home. It’s about bringing life and love back into the home and getting the home back to a point that it can support its new owners to its fullest extent.

 

When she found this particular house, she knew almost immediately that the best seat in the house belonged in the living room. This room had a beautiful rustic brick wall, a fireplace that had immense potential to bring warmth and comfort to the room, and a gorgeous view out of a large bay window. So, as is her way, she started in this room and spread out from there.

The house needed new floors, new paint, and the bathrooms needed gutting and renewal. That’s not including the kitchen, which needed all new cabinets and appliances.

To break down the numbers, she bought this home for $135,000. She spent 4 months and $45,000 on the renovations and fix-ups. In the end, she was able to sell this home to the excited new owners for $239,900! She told us that one of the things that helped her sell this home so quickly was, in fact, the best seat of the house. It’s a unique way to show how much potential a home has. A lot of the time with house-shoppers, it’s about a feeling that they get when in the home. Having them sit down in the best seat of the house is a tremendously successful way for them to get that warm and fuzzy feeling.

Moved by curiosity, we asked her if she had a Best Seat of the House in her own home. She replied, “Absolutely we do, but if you want to sit there, you have to move the dog.”

Do You Need a Hard Money Loan?

With hard money loans, it’s very important to shop around. Every hard money lender will offer a slightly different type of loan, with slightly different requirements.

There is a loan that is perfect for your credit, your plan, and your property. You just have to find it.


Contact us for a Hard Money Loan

Check us out on YouTube

Hard Money Mike funds loans in Colorado, Oklahoma, and Texas.

Hard Money Lender vs Bank Financing: Why You Need Both

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Which funding should you get? 3 case studies on a hard money lender vs bank.

In the typical real estate career, you follow this funding path:

  1. You use hard money because it’s all you can qualify for.
  2. With experience, you start qualifying for bank loans, so you move on from hard money.

What most people miss is a crucial third step:

  1. Now you have two valuable funding sources in your toolkit.

Most people view hard money as a stepping stone to “better” financing. While true in some ways, putting hard money in the past can make you miss out on some amazing opportunities hard money offers.

Let’s get over 3 examples of clients we’ve had who are far into their real estate career but still benefit from hard money. And lastly, we’ll go over how you can make that big step into bank financing.

3 Case Studies – When to Use a Hard Money Lender Instead of a Bank

We work with people who have been doing the investing game for 10 to 15 years… who still utilize hard money whenever they need it. Here’s what three of those people do and how they use hard money vs bank loans.

Mary: Cross Collateralizing with a Hard Money Lender

Mary is a developer who builds big homes here in Denver – anywhere between $2-4 million.

She has bank financing set up for the majority of the construction period. However, when she finds a lot or house she wants to scrape, it usually needs to close within 7-10 days. Her bank funding can’t work that fast.

So, she comes to a hard money lender to get the property quickly and with 100% financing. She cross-collateralizes (aka, uses her other properties) to make sure she gets full funding with us.

Once the property is approved through zoning and everything, her bank funding kicks in to pay off the hard money loan.

Jeff: Hard Money Lender a Solution to a Bank Limit

Jeff is a flipper who does about 4 or 5 projects per year here in town. They’re pretty good sized, ranging from $400k to $800k.

But his bank sets a limit, and he’s only able to do about two flips at a time with them. So when he has two projects going but finds a great deal, he’ll go to a hard money lender. Hard money frees him up to jump on a good property, even when his financing is tied up elsewhere.

TC: Hard Money Lender Is Faster Than a Bank

TC has been a longtime client of ours who also uses other financing too. He came across a deal where he was one of five bidders. On the very first day, he bid $30,000 less than everyone else because that’s what would fit his budget with construction and everything.

And he won the deal. Why?

Because he could also close in less than 10 days with a hard money loan. He didn’t need an appraisal, inspection, or anything else that prolongs the sale and gives sellers a headache.

Using a hard money lender instead of a bank was the only way he was able to get that property for 10% less.

You Need Both!

It’s not either hard money or bank loans. You need to use both.

At the end of the day, bank loans are almost guaranteed to be cheaper with interest rate and points. They should always be used when possible. But sometimes bank loans aren’t realistic – you need money now, or you lose out on a great deal.

Banks:

  • Cheaper, lower interest rates and fees
  • You get the entire loan upfront
  • Require a good credit score
  • Take longer upfront (closings can take 2-6 weeks or more)
  • Necessary for long projects

Hard money lenders:

  • More expensive, higher interest rates and points
  • Can take longer in the middle of the project to get funds from escrow
  • Lenient on credit
  • Fast closings (sometimes within days)
  • Flexibility
  • Great for short-term projects

Hard money lender vs bank? They both need to be valid funding options in your career.

How to Get Bank Loans for Real Estate Investing

It may be important to keep hard money in your back pocket, but you should always be moving toward acquiring bank loans. This cheap, long-term funding will fuel the majority of your career.

Here are the steps you need to take to make the leap from hard money to bank funding.

1. Be In Business for 2 Years

You need at least one of the following for bank loans:

  • A W-2 job that meets the income requirements (aka, investing is a side gig for you and you make plenty of money elsewhere).
  • Your business has been established for 2 years or longer.

If real estate investing is your full-time job, then you need to show that you have experience and income from it. In that 2-year span, you will want to complete at least 3 successful projects.

2. Have a Good Credit Score

Bank loans are highly credit score-driven. You’ll need a score of at least 680, but higher if you want better terms. This is something you should be working on now so it’s ready when you really need it.

If you struggle with your score because of credit usage from your business, check out this article for a solution.

3. Down Payment Funds

This can be a major obstacle for newer investors. Luckily, you have a lot of options for help with the (usually 20%) down payment for bank loans:

Find Investor-Friendly Banks

One last tip on the journey from hard money to bank loans: find the banks that like to work with real estate investors.

Most of the large banks, like Chase and Wells Fargo, will only work with a very, very select few investors. Instead, you should look at local banks and credit unions that offer investor loans.

Don’t bother barking up the wrong tree. Find a lender who wants to help real estate investors. As you move through your career and get your experience, start reaching out to find the banks in your area that love to work with investors. 

Need a Hard Money Lender vs a Bank?

Need a quick close, gap loan, bridge loan, or a fix and flip loan? Reach out at Info@HardMoneyMike.com. 

We can help you find unique funding that’s outside of the banking box.

Happy Investing.

Trash to Treasure

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One of our favorite parts of this business is witnessing a property go from trash to treasure. This property in Texas was purchased by one of our Great’s when it was in a very rough state. The history of the property involved abandonment, poor renters who didn’t care for the place, to more abandonment. There was a lot of work to do. But this particular fix and flipper had an eye for properties like this. He can see through the rot, past the trash, and see what potential the house has.

 

He started with the foundation and bones of the house. There were foundational cracks, mold, and rot throughout. It was a necessity to take care of all of that first and foremost. A good, solid house needs upstanding and sturdy bones.

 

He moved on to the kitchen and bathrooms, both of which needed some upgrades and serious TLC. With new floors, tile, and appliances, the kitchen made a complete 180°. He went with a clean, white look and the place really sparkles.

For the bathroom, the whole thing needed replacing. He put in a nice jacuzzi tub, which really adds a nice touch to the feel of the bathroom. A modern, sleek vanity mirror combo catches the eye and invites people in with raised eyebrows. Finishing off the look with smooth walls and ceiling, exquisite tile floors, and a brand-new window, this bathroom sure is a treasure to behold.

Finishing the rest of the home with this same effort and determination, the house was flipped into a home and the new buyers couldn’t wait to sign on the dotted line. When the house was trash, it was purchased for a measly $135,000. When the house was flipped into treasure, it was sold for a whopping $230,000. And it took just 4 months to do it! With a solid crew at his back, our guy turned this home into something he can always be proud of. And this home is packed full of treasure and will never be trash again.

Do You Need a Hard Money Loan?

With hard money loans, it’s very important to shop around. Every hard money lender will offer a slightly different type of loan, with slightly different requirements.

There is a loan that is perfect for your credit, your plan, and your property. You just have to find it.


Contact us for a Hard Money Loan

Check us out on YouTube

Hard Money Mike funds loans in Colorado, Oklahoma, and Texas.

Private Money vs Hard Money: Is There a Difference?

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There’s no technical difference between private money vs hard money… Or is there?

As a real estate investor, one of your main goals is to get the best leverage possible. You want lower down payments, interest rates, and fees.

But who’s going to give you that best leverage? Private money lenders, or hard money lenders?

In fact, is there a difference at all between these two lender types? Let’s take a look at private money vs hard money and see who you should go to for the best prices.

What’s the Difference Between Hard Money & Private Money?

Firstly, what’s the difference?

Here’s the thing: private money loans and hard money loans are usually used interchangeably. There’s no clear-cut definition between them.

Both types of lenders ultimately do the same thing – they lend money based on an asset for real estate investing.

Okay, But What’s the REAL Difference?

Although private money and hard money are the same concept, each word has different connotations in the real estate investment community.

We’ve found that people typically associate local lenders with hard money. And they consider capital corporations – the capital funds off Wall Street – private money lenders.

Again, we’re doing the same thing. We’re lending money based on an asset for real estate.

So why are we making such a big deal about the difference? Although they’re the “same” thing, the requirements and costs of each type of money can be vastly different.

Let’s look at what we’ve found about the experience of a private money lender vs a hard money lender.

The Hard Money Experience

People tend to have a poor perception of hard money. They assume hard money = loan sharking. That hard money lenders will get you into a bad deal just for the sake of profiting off you.

The reality is quite the opposite.

Local hard money lenders make money when you make money. They want you to be a successful investor.

Therefore, hard money is flexible in the type of deals they’ll look at and the type of help they offer. They’ll do gap funding and second positions; they may offer bridge loans for saving flips that have gone bad. They’re not strict on credit score requirements, and they often don’t even require an appraisal.

The Private Money Experience

Typically, Wall Street private money lenders are “box” lenders. That means anything that doesn’t fit in their box, they will not do.

Private money also tends to be a bit pricier. We’ll share a story to describe this.

Mike did a group meeting for a real estate investor in Boulder, CO. He went over the hard money loans that we could do. At the end, someone brought up the common question: “What’s the difference between hard money and private money?”

The organizer of the event stepped in. He said, “I’ll tell you what the difference is. I used a capital company. I used someone from Wall Street.” And he shared their terms.

And guess what?

He was putting 5% more down than a hard money lender would require. He was paying a 1% higher interest rate and over $1,200 more in fees. …All because he wanted to be able to say he was working with a capital fund private lender.

We see clients who share a similar story. People lose money on projects by not looking at the exact costs and opting for the bigger name instead.

Which Is Better – Private Money or Hard Money?

So, to determine what’s best for you, you need to look at all the numbers.

  • How long will each loan take? How much will a slow close cost you?
  • What do you need to put for a down payment?
  • Do I meet the credit score requirements?
  • What are the rates?
  • What are the fees/points?

Invest by the numbers, not by the names.

To make this part of the process easier for you, we have a free loan optimizer download for you. For your next project, do this:

  • Go to three different lenders – a mix of private and hard money. 
  • Get all the numbers from them for what they’ll offer on your deal.
  • Plug those numbers into the calculator.
  • Compare the final costs the calculator gives you to determine the cheapest loan.

Why do you have to be so rigorous with numbers? When it comes to private money vs hard money, the cheaper option up front often isn’t the cheaper option overall. The lender with lower interest rates might slip in more junk fees. The one who charges zero points could have upwards of 12% interest rates. The only way to find the best loan for your deal is to use a tool and do the calculations.

I Might Want a Loan

Need a real estate loan? We want you to get the best one possible. Leverage makes your real estate world go round, and the cheaper you can get it, the more successful your business.

Reach out to us with a deal at Info@HardMoneyMike.com.

For more real estate investing resources, check out the videos on our YouTube channel.

The Foundation of a Good Home

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The foundation of a good home goes a lot deeper than what you can see. Not to be too overtly obvious about it, it starts with the foundation of the home. Having a strong home means having a solid foundation.

 

There are some fix and flippers out there who may try to cover up foundational issues in the home in thinking about their bottom line. They see a crack going through the concrete floor and decide to put a new floor over top and not let the eventual buyer see that. They don’t want to spend the money and time to fix a large foundational issue with the home, it’s far too costly. Unfortunately, come a year later, that new homeowner now has cracks running up their walls.

 

We don’t work with those kinds of fix and flippers. We believe in integrity and honesty, and we don’t want to invest in those who try to trick people. The foundation of a good home starts with hard work, and a sturdy foundation.

 

Take this fix and flipper we worked with last year, the initial photos he sent us of this home showed many foundational issues, and a large part of his budget was put toward fixing those issues.

He knew that just putting up a wall or putting down a floor to cover the problems wouldn’t benefit the house or the homeowner in any way. It was crucial to fix these issues, and he had to do them right. It started with digging tunnels under the home to access the support beams. He placed foundation repair pilings under each major beam, used hydraulic jacks to lift the home to the correct level. Finally, support cylinders were placed under the beams and shimmed them to the proper height.

 

It’s not easy work, or cheap work, but it’s necessary work. The end result speaks for itself, and for decades to come. The new homeowner can be confident that they are living in a sturdy, good-quality home. They won’t have to worry about any foundational cracks peeking up anytime soon. This home can now be a “forever home” because it has a rock solid foundation.

Do You Need a Hard Money Loan?

With hard money loans, it’s very important to shop around. Every hard money lender will offer a slightly different type of loan, with slightly different requirements.

There is a loan that is perfect for your credit, your plan, and your property. You just have to find it.


Contact us for a Hard Money Loan

Check us out on YouTube

Hard Money Mike funds loans in Colorado, Oklahoma, and Texas.

3 Ways Banks Trap Real Estate Investors in Pricey Loans (and How to Get Out)

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Credit, banks, and real estate investors: 3 traps and how to avoid them. 

As a real estate investor, you always want to minimize costs. This includes the costs of the money itself.

However, banks can trap real estate investors into paying more than they should. You could be paying 1-4% more in rates, 5-10% more on down payments, or could even be denied altogether.

These three traps all come back to what we call the usage circle. Let’s talk about what the usage circle is and how it affects real estate investors.

The Usage Cycle: How Banks Trap Real Estate Investors

Here’s how the usage circle goes:

  • A real estate investor uses their credit cards to keep a project going. They pay for materials, labor, expertise, and more on their cards.
  • They will pay the card off after the real estate transaction. When they close or refinance a deal, they’ll wipe the card back to zero.
  • But while they’re using the card, their credit score will drop. When they pay off the card, their score will go back up.
  • Banks still use the current, low credit score when they give you the loan.

And there’s the trap.

Using credit to buy the stuff that keeps your business going pulls down your credit score. But with a bad credit score, you can’t get the loans to keep your business going.

How Credit Usage Impacts Loans

Usage makes up 30% of your FICO credit score. When an investor is using a lot of their available credit, their score takes the hit.

The difference between a 679 and a 680 score can mean the difference between getting a conforming conventional investor loan or getting declined.

You’ll pay off your credit once you sell or refinance your investment property and your score will go back up. Banks know this, but they can’t take it into account. They have to use your current credit score when you apply – even if it’s only low because of high usage on business costs.

Here’s how banks leave real estate investors trapped in this way.

1. Higher Interest Rates or Loan Costs

If your credit score is down due to high usage, you’ll end up paying an extra 1-4% either on your interest rate or loan costs. On a $400,000 project, this can add up to an extra $4,000 to $16,000 just for one transaction.

2. More Money Down

Banks may require you to put down 5-10% more on a property if your credit score is low. On a $400,000 transaction, this means you’ll have to bring an extra $40,000 out of your pocket. This unexpected cost could prevent you from doing the deal in the first place.

3. Loan Denial

Banks may decline a real estate investor’s loan if their credit score is even just one point below the bank’s guidelines. If you can’t get a loan, you’ll be locked out from getting a rental property, flip, or other investment opportunities.

Solution to the Banks’ Real Estate Investor Credit Problem

The credit score usage trap is real. It happens to almost 80% of the clients that we see.

The solution to avoiding the credit score usage trap is simple: stop using your personal credit cards for business use. If your credit usage is in your business’s name, then it won’t impact your personal credit score.

Here’s the method we recommend.

How to Move Your Credit Usage from a Personal to a Business Credit Card

If you have an LLC set up, you’re already working as a business, and your usage is impacting your personal credit score, then you can move the debt.

You can pay off the credit card balances using a private loan. This usually looks like having a family member or friend provide the funds.*

Then, you let the credit cycle through 30-90 days to allow your score to go back up. Once your score is settled, you can apply for a business credit card and move the balances over.

*If you don’t have someone you can ask for a private loan to do this, reach out to us. We do this type of loan all the time for our clients. We don’t want credit to be the reason you can’t flourish in your real estate investing career.

Stop the Banks’ Usage Cycle Trap for Real Estate Investors

It’s important to choose the right credit card. Some business cards do still show up on your personal credit. Do not choose this card – it defeats the whole purpose!

Not sure which card to pick? We have a link on our website to a business card that we use ourselves and highly recommend. If you get it, we’ll give you $250 off the next loan you do with us.

Tricks and tools like this are what set apart successful investors. Don’t let credit and banks trap you in pricey loans!

Happy Investing.