Tag Archive for: Fix and flip

Text: "How to Flip for Profit"

How to Flip for Profit in 2022

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At the beginning of 2022, flipped homes would sell in a matter of hours, rather than weeks or months. The fix-and-flip experience will be a little different in the remainder of 2022. How can you flip for profit this year?

What Properties Will Flip for Profit?

Your best bet for income in real estate flipping will be sticking to medium price point properties.

Some areas – for example, City center of Denver — are still doing great in higher price ranges. People are still selling $1 – 2 million dollar properties with no issues. But in smaller communities, there are fewer people who can afford $600,000 – $900,000 properties.

With rising interest rates, people who were looking in those higher price ranges now need to look a little lower. Medium property prices are also always competing with rent.

Even though interest rates have gone up 5 – 6%, a $150,000 – $250,000 house will still be in a competitive market with rent. As long as they can afford it, people will always steer toward buying a home rather than renting.

Rent prices aren’t going anywhere but up. We may see changes in the renting sphere as congress discusses hedge funds and other big investors driving rent prices up. But for you now, rising rents could push more people to consider home ownership in the low-to-mid price range.

Flipping Expectations for 2022

When you look at your market, know that 3-bedroom, 2-bath, and garage homes will always be reliable as a seller. People will always be searching for those types of properties for their families.

You’ll find buyers in this range, but be sure to adjust your expectations. In the last market, buyers would make offers within hours or days. The reality of this upcoming market is it might take one or two months to find a buyer. Be patient, take your time, look at your area, and keep an eye out for upcoming foreclosures and other opportunities.

Read the full article here.

Watch the video here:

Text reads "What Is Hard Money." Mike Bonn stands with cartoon coins surrounding him.

The Beginner’s Guide to Hard Money Loans

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Hard money basics you need to know before real estate investing.

We’ve been in the hard money loan business for 20 years. Half the calls we receive are still beginner real estate investors trying to learn the money side of investing.

If that’s you, you’ve likely applied for, heard of, or thought about using hard money lenders. But maybe you don’t fully understand the private lending world yet. How does a hard money loan work? How much interest do private lenders charge? Do hard money lenders require a minimum credit score? Should you just wait until you qualify for better bank loans?

This guide will help answer:

  • What is hard money?
  • What do hard money lenders look for?
  • How is hard money different than other loans?
  • How do you qualify for hard money?
  • Is hard money better than banks?

Becoming hard money proficient will put you miles ahead as an investor. 

Ready to nail the basics?

What is Hard Money?

Hard money is a short-term loan designed for real estate investors. Hard money lenders focus on lending money on undervalued properties in need of rehab.

Hard money loans are short term – usually around six months or a year – and are designed to help buy properties to fix up.

While “easier” than traditional bank loans, hard money loans are also more expensive due to higher interest rates. Which brings us to the most important quality of hard money loans: they’re fast.

In real estate investing, discounted properties typically require fast-closing deals. Hard money loans can help you take advantage of prices while they’re low, and: 

  • Save on the property cost to begin with
  • Get more from selling or refinancing the property.

These savings more than cover the costs of a hard money loan for most investors.

The speed of hard money makes it valuable for newbie and seasoned investors alike. Hard money loans are made for real estate investors.

How Does A Hard Money Loan Work? 

What do hard money lenders look at? There are two main factors lenders of hard money consider.

Loan-to-Value Ratio

An important number a lender takes into account is the cost of the property. The ratio of the loan they offer and the cost is important for you to know.

Let’s say you have a property with a current appraisal of $200,000. Then you get a loan for $100,000. The loan is half of the value of the home, so your loan-to-value is 50%.

After Repair Value (ARV)

ARV, after repair value, is another important factor hard money lenders consider. The properties targeted by real estate investors are undervalued. They need work to be brought up to the standards of the surrounding community.

So, lenders look at not only the current value of the house, but also the future value of the house, after it’s all fixed up.

Many hard money loans are based on after repair value rather than loan-to-value. Your lender might offer you up to 75% – not of what you’re buying it for, but what you could sell it for by the end. 

What Does ARV Cover?

A key factor to ARV is that lenders will lend not only for the initial purchase, but for the fix-up costs. 

Many lenders will put money aside in escrows to use throughout the project to pay contractors and cover other renovation costs. 

If your loan considers ARV, it’s possible for you, with ZERO money down, to:

  • Buy a property.
  • Fix it up.
  • Either sell it (fix-and-flip) or refinance it (BRRRR).

After selling or refinancing, you use that money to pay the loan back.

Hard money is designed to build value into real estate. Understanding the role of the after repair value will help you immensely in your hard money investments.

How Is Hard Money Different from Other Loans?

Interest rates on hard money are between 2-5% higher than what you’ll find at banks. You can expect origination fees to be about twice as much. Appraisals will be close to the same.

So on paper, the rates and fees are higher, so it feels like you’re spending more. Which you are! But with hard money loans, you’re paying for:

  • Accessibility
  • Convenience
  • Flexibility
  • The opportunity to purchase properties you’d never be able to while relying on bank loans.

While hard money costs more than other loans, the potential value is also way higher. When sellers have discounted real estate, they want it sold fast. Banks can take 25-30 days to close. You can receive hard money in a matter of days.

Every week, we see hard money work to save people money.

When a recent client of ours bought a property, he saved 10% – just because he could close faster than the other five bidders. His savings on that purchase were $30,000: much more than double what he’ll spend on the loan transaction.

How Do You Qualify for a Hard Money Loan?

There are two kinds of hard money lenders. They each have different qualification requirements.

National Hard Money Lenders

National lenders lend in almost every state. They are larger organizations, backed by hedge funds and private equity.

National hard money lenders require:

  • A credit score check, and a good score.
  • Experience – at least five deals in the last three years. 
  • Properties to be in specific larger communities.

So if you’re new to investing, need to improve your credit score, or are looking at more rural properties, you may need to look into local lenders.

Local or Private Hard Money Lenders

A local, or private, lender will specialize in your state or area. Local lenders are much more likely to:

  • Not ask for a credit score.
  • Not require experience.
  • Lend for rural areas.

Local lenders are focused on the deal itself and whether it has good value.

When deciding which lender to use for hard money, always shop around to see what fits your situation now. And be aware that another lender may fit you better in the future.

Are Private Lenders Better Than Banks?

It’s impossible to say whether hard money lenders or banks are “better” for real estate. It all depends on your deal and where you are in your investment career.

When to Use Bank Loans vs Hard Money Loans

Bank loans will have lower rates and may be the better route if you:

  • Have had a successful investment business for over two years.
  • Make a lot of money at a W-2 job.
  • Have 3-4 weeks to close.

Hard money loans will be easier, faster,  and may work better if you:

  • Are newer to real estate investing.
  • Don’t have money up-front to invest.
  • Don’t want to put your own money into a deal.
  • Need to close within a week or two.

As long as a property promises income, hard money more than makes up for its higher rates with the speed and greater potential savings. Starting in hard money paves the way for you to work up to bigger funding opportunities.

Ultimately, your investment career should always have a mix of funding types. Bank loans, hard money, and OPM all have their place to work for you in real estate investing.

Where to Go from Here

Understanding money is key to successful real estate investments. When you put time into understanding money, you get control of it. With control, you can multiply your investment earnings four times over.

It doesn’t stop here. We want to help with your hard money education:

Why Realtors Make Good Team Members

Why Realtors Make Good Team Members

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Why Realtors Make Good Team Members

If you want to make the most money on your real estate deals, then you need to create a solid team.

And some excellent members to add to your team are investor-friendly realtors.

But, why do realtors make such great team members for real estate investors?

Well, first of all, they have a constant pulse on the market.

They know what’s happening, where it’s happening, and how it’s happening.

Second, discounted properties also tend to fall into their laps, and they can pass those properties on to you.

So, what type of realtor should you work with?

Well, they should do more than put you on their MLS drip. Any realtor can do this, and nowadays, many of the properties on the MLS get listed on sites like Redfin and Zillow.

So, getting on an MLS drip won’t help investors much…especially when we’re looking for under-market properties. And under-market properties aren’t found on the MLS often. The right kind of realtor will have a lot more hustle. They’ll actually search for under market properties and then go through the numbers to decide it’s worth investing in before they present it to you.

Better yet, investor-friendly realtors connect with professionals in various industries, like bankruptcy attorneys. That way, when investment properties pop up, they’ll be one of the first to know about it. And then tell you about it, rather than making you wait to—hopefully—see it on the MLS weeks or months later.

Most importantly, the right realtor will LOVE working with investors.

Unfortunately, about 95% of the realtors do NOT like working with investors. Or, if they do, it’s part-time and not a high priority for them. These are usually more experienced realtors who have an established client list. They don’t really need your business to make money. They already have a system in place.

But, when you find realtors who are investor-friendly, you’ll know. You won’t be a side gig or a part-time project for them. They’ll be hungry to help you find investment properties and make a lot of money.

Many times, these are newer agents who are willing to be trained. They’ll be the ones looking for business and finding ways to make money with you, not off of you. So, rather than selling 3-5 properties a year, they want to sell an investment property every month.

Now, is it a bad idea to team up with both experienced and new realtors?

Not at all.

In fact, it’s a great idea to work with multiple realtors, because they all have different resources, experiences, and ideas. Plus, if one moves away or quits their job, you don’t need to worry about losing your main resource for finding properties. You’ll have others to fill in the gap.

If you want to create a smooth, easy system with your investment properties, then adding a realtor or two…or three…to your team is an excellent idea. Just make sure they like working with investors and are hungry to make money. The hungrier, the better for both of you!

Happy investing!

How to Combat Red Flags in Real Estate

3 Ways to Combat Real Estate Red Flags

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3 Ways to Combat Real Estate Red Flags

It’s time for a real chat.

Because we care about our clients and anyone else who decides to invest in real estate.

So, here’s the brutal truth: there are people who will lie to you in this industry. Lenders, realtors, other investors, and so on. Or only tell you half-truths.

I know. This is a HUGE surprise.

Okay, maybe not.

But, even if common sense and experience tells you that people lie, you can’t always believe it when it happens to you.

Why?

Because, more often than naught, you WANT something to be true, especially when it comes to making money. You want to believe you found an incredible deal, or an incredible lender, or an incredible something that nobody else has had the luck to find.

We all want those incredible moments to be true, right?

But most of the time, they’re just not.

So, what can you do to protect yourself and your wallet from real estate red flags?

Well, here are 3 tips we give to our clients:

First, if it seems too good to be true, it probably is.

For example, “If you buy this property, then you can generate $5,000 – $6,000 every month.”

Okay, that’s definitely a red flag.

Sure, we all want to make excellent cash flow on our properties. But, even in our competitive market, it’s near impossible to make $5,000-$6,000 every month on a standard rental in most towns or cities. The norm is more like $200-$500 a month…at least until a property pays off.

But, even then, making $5,000 – $6,000 every month with a single property is…too good to be true.

Unfortunately, we’ve seen this situation happen more than once to our investors. They get convinced of a sweet, sweet deal and jump into it. And…it doesn’t take long for them to figure out the person who convinced them to buy the property streeetched the numbers and the truth…a lot.

So, what can you do when a red flag waves in your face?

Ask questions.

Okay, someone told you something that’s too good to be true. Now what?

That’s right: ask questions. A lot of them!

For example, let’s say a lender quotes you a 4% rate when everyone else is quoting you about 10%.

Your first reaction is to cheer and think, “That’s amazing! I’m so happy I called this lender.”

But your second reaction should be, “Wait, why? Why is this lender quoting me so much lower than everyone else? What do they see that the other lenders missed? Why are they so much more forgiving and accepting of my financial history?”

There’s gotta be a catch.

Trust us, there is.

When lenders give quotes that are significantly lower than their competitors, it’s because they pad the rest of the loan with junk fees. They charge for everything, not just the loan itself. So, before you know it, you’ll be paying more than the 10% interest you would’ve paid with one of the other legitimate, honest lenders.

So always ask questions when a red flag pops up.

And, part of that process includes…

Getting a second opinion.

So, a red flag went up. Then you asked the lender, realtor, seller, investor, or whoever a bunch of follow-up questions to figure out if they’re telling you the truth…or yanking your chain and taking advantage of you.

Sadly, even if you grill this person, you might not get a direct or honest answer from them.

So, go and get a second opinion. Heck, get a third opinion! There are plenty of experts in the field to ask. Go out and see what they think of this “too-good-to-be-true” offer. Is it real…or fake?

Spoiler alert: it’s probably fake.

By taking these simple steps, you can protect yourself and your wallet from falling into a bad situation.

Just remember:

If it’s too good to be true, ask questions and then get a second, third, or even fourth opinion. Do your due diligence to save yourself a lot of hassle…and money.

Happy investing!

How to Make Money Bird Dogging

How to Make Money Bird Dogging

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How to Make Money Bird Dogging

Do you know how to make money bird dogging?

So, let’s say you’re eager to start investing in real estate, but you’re not quite ready to fix and flip or BRRRR. It’s just too big of a commitment or too much of a risk. Or both.

No problem.

You can still make money in real estate with a simple, but effective method called bird dogging.

What is bird dogging?

Basically, it’s driving for dollars. You hop in your car and drive around the neighborhood, city, or entire state and look for potential investment properties. You can even put on your best walking shoes and take a jaunt around your own neighborhood.

So, what does an investment property look like? Well, you should be able to tell it hasn’t been maintained. The paint is chipped, the windows are broken, the lawn overgrown, and so on. Or it’s vacant. Or there’s just something else is wrong with it that makes you think it can be sold at a discounted price.

Then, you collect information about the property. That means you can knock on the door and chat with the owner, take photos, and/or jot down the address. Once you do one or all these things, you can share it with potential buyers.

Buyers are usually wholesalers, investor-friendly realtors, flippers, or other real estate investors. They take the information you provide and follow-up with the owner to see if they’re actually interested in selling their property.

Essentially, you become the eyes and ears of the market.

So, what are some of the biggest benefits of bird dogging?

  • First off, it’s great for beginners who want to learn more about real estate investing. Maybe you’re not ready to flip or rent homes now, but you want to in the future. Bird dogging is a great introduction to both.
  • Unlike flipping and renting, bird dogging also doesn’t require any money to start. You don’t need to worry about classes, training, loans, or anything else that requires cash out of your own pocket.
  • Bird dogging is also something you can do when you have the time. So, it’s easy to fit into your schedule, be it during your lunch break, after you drop off the kids at school, or during your Sunday stroll. Really, whenever works for you!
  • Better yet, bird dogging can create multiple streams of income. You can make money when you find an investment property, when a wholesaler or realtor sells it to a flipper, and—if it’s a flipper—when they sell it after renovating it.

So, there you have it! Bird dogging is something you can do whenever and wherever. Just hop in your car or put on your shoes and go exploring. Find those properties that are in disrepair and share them with buyers.

How Your Credit Score Impacts Your Real Estate Investments

How Your Credit Score Impacts Your Real Estate Investments

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How Your Credit Score Impacts Your Real Estate Investments

Did you know your credit score impacts your wallet…and the cash flow you get from your real estate investments?

Because the better your credit score, the better, easier, and more profitable your investments will be. Because your credit score determines your interest rates, the amount of money you need to put into each deal, and what kind of loans are available. If you have a low credit score, then you can expect to:

  • Pay high interest rates.
  • Put more of your money into each deal.
  • And have fewer loan options available.

So, yeah. Your credit score matters.

But…what is a credit score?

Well, basically, it’s a number between zero and 850, and this number helps lenders decide if they can trust you with their money.

You see, financial institutions don’t know you. Unfortunately, you’re just another face in the crowd. So, in order to get to know you better, they created a scoring system that helps them understand you and your financial habits.

Again, you want to aim for a high credit score. Generally speaking, anything below 700 is going to cost you time and money, and lead to a lot of disappointment and frustration.

How does your credit score get calculated?

Well, multiple factors get considered, but the two biggest ones are your payment history and amounts owed.

First, your payment history is exactly what is sounds like. Financial institutions can see how you pay your bills, how often you pay them, how late you pay them, and if you pay them at all.

As for amounts owed, this is how you utilize your credit lines.

For example, if Jane and Joe both owe $1,000 on their credit cards, they can still have very different credit scores. Because Jane’s card is maxed out at $1,000, while Joe’s credit card is maxed out at $5,000.

So, creditors see Jane as a risk, because she’s not managing her credit very well. She’s 100% tapped out.

Joe, on the other hand, isn’t a risk, because he still has another $4,000 at his disposal. So, unlike Jane, he’s only using 20% of his available credit. And creditors like that!

That’s why, at the end of the day, Joe’s credit score will be higher than Jane’s.

So, what kind of score should you really aim for? Well, for the best loans with the best rates, you’ll want a score that’s higher than 740. Anything above 800 is considered exceptional. If you have this kind of score, then you’ll likely always hear “yes” from lenders, rather than “no.”

Now, if your score lands between 670 and 739, then you’ll still be in a good position for a decent loan with decent rates.

Anything below 670 is…not so good. But that’s okay, because there are easy ways to quickly raise your credit score.

#1: Add more credit to your credit line

Remember Jane? Well, she can go to her credit card company and ask them to raise her limit from $1,000 to $3,000. That would drastically impact her credit score, because she’ll go from using 100% of her available credit to only 33%.

#2: Get authorized on someone else’s GOOD credit account

A good credit account means it’s paid on time, it’s existed for a while, and it has a low balance. So, think about asking a parent, a friend, or someone else you trust if they’ll add you as an authorized user to their credit card account.

#3: Go private

This means borrowing money from someone or someplace so you can pay off all of your credit cards for 60 or so days. During that time, you can apply for more credit.

Basically, your credit score determines your path. If you want to pay lower rates, use less of your own money, and have more loan options, then you need to focus on raising your score.

Just remember, a high credit score will make your fix and flips, rentals, and other real estate investments a whole lot easier and way more profitable.

Happy investing!

What is BRRRR?

What is BRRRR?

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What is BRRRR?

Did you know you can buy properties with as little as zero down? It just takes an easy investment strategy many investors call BRRRR.

Although the term “BRRRR” was coined by Bigger Pockets in recent years, the investment strategy has existed for decades. Some call it zero down, some call it Quick to Buy, Quick to Refi. Whatever you want to call it, it’s all based on buying properties with as little as zero down.

So, what is BRRRR?

Well, let’s break it down piece by piece so you understand how to approach each step. That way you can generate the highest cash flow possible.

The B in BRRRR stands for “Buy.”

Now, how do you buy properties correctly when using the BRRRR method?

First, you need to buy under market properties with a short-term loan, like hard money. You shouldn’t buy retail properties that are already fixed up and ready for tenants. These are supposed to be value-add properties, meaning you add value to them. That way you immediately create equity in the project.

Second, you need to be able to buy properties FAST. The faster you can buy, the better the deals. Because sellers want to sell fast. Even if you bid lower than three other investors, you can still get the property if you can close quickly. Because speed nearly always wins.

The first R in BRRRR stands for “Rehab.”

The properties you buy using the BRRRR method will need rehab to bring them up to rental grade. That means simple, but durable renovations. You don’t need to aim for high end finishes like granite countertops or new, expensive cabinets.

Even so, the work you do should add value to the property. That way when an appraiser shows up, they can see you’ve improved it and now it’s worth more than what you bought it for. Again, think about creating equity. Equity is key!

The second R in BRRRR stands for “Rent.”

The moment you decide you want to try the BRRRR method, you should start researching rental numbers immediately. Go onto Zillow, Craigslist, or Rents.com and find out what other people in your target neighborhoods are charging for rent. That way you’ll know if a property will produce good cash flow BEFORE you buy it.

And once you know what your numbers are, go ahead and start accepting applications for tenants. It’s okay to look for quality, trustworthy people to live in your home even before you have the home ready for them.

The third R in BRRRR stands for Refinance.

Refinancing into a cheaper, long-term loan is the next step in the BRRRR method…and it’s where you get to capture the equity you created in the “Buy” and “Rehab” steps.

How?

Well, if you did those first two steps right, then you bought an under market property and then renovated it to add value. The gap between the buy and the rehab is your equity. And you can use that equity (rather than the money in your own pocket) to pay for your new loan’s down payment. That’s how the zero down portion of this strategy works.

Finally, the fourth R in BRRRR stands for Repeat.

The whole benefit of BRRRR is that you can repeat the process over and over…and over. As long as you find good, under-market properties and create good equity, you don’t need to wait to save up for a 20% down payment. You can complete this process whenever you want and however often you want.

And, at the end of the day, always remember your lender matters. When it comes to BRRRR, you want a lender who can help you maximize your hard money loan, and help you refinance into a traditional loan FAST.

So, if you’re ready to jump in and try out the BRRRR method, our team is always here to help.

Happy investing!

What You Can Be Thankful For as a Real Estate Investor

What You Can Be Thankful For as a Real Estate Investor

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What You Can Be Thankful For as a Real Estate Investor

If you’re thinking about fixing and flipping or fixing and renting properties, then there are a few things you can look forward to being thankful for.

Money

First, the most obvious, you can make quite a bit of money in the fix and flip and fix and rental game. As long as you understand how to properly find, value, and buy properties, then you can expect some excellent pay days in your future.

Cash flow

Second, you can take the money you make and boost your cash flow. And that extra cash flow means you can start living the kind of live you’ve always dream of. That means quitting your day job, taking more vacations, saving up for a more comfortable retirement, or doing whatever  else it is that would make your life better.

Community

Third (and the least thought about) you can make an extremely positive impact on your community.

Without real estate investors, communities would slowly deteriorate and eventually fall into disarray.

Think about the HGTV show, Good Bones. A mother and daughter team up to fix homes that have aged and withered throughout their neighborhood. But, home by home, they’ve revitalized and given their community new life. They’ve given it value, once again.

That’s what all fix and flippers do.

They find neighborhoods, towns, and cities that have fallen into disrepair, and breathe fresh life into them. By doing this, they revive the economy because people want to live there again. Schools, safety, and quality of life rise drastically.

But the only way this can all happen is if real estate investors continue tackling fixer uppers.

So, as you can see, real estate investing is something you can truly be thankful for. It’s a way to boost your cash flow and help your community.

Happy investing!  And happy Thanksgiving from our team to you and your family.

We Love Small Town Fix and Flippers

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We Love Small Town Fix and Flippers

Do you flip or rent properties in a small town or a rural area?

If so, do you have a difficult time finding someone to fund your deals? Because, the truth is, a lot of hard money lenders shy away from smaller markets.

Well, guess what? We love helping small town real estate investors.

Unlike other lenders, we don’t care if loans are under $100k or if the property value is less than $100k. We can help.

Better yet, we can lend on properties without waiting for appraisals. That means we can close deals FAST. We’re talking days instead of weeks.

And our loan requirements are intended to be small town friendly, so all we ask is that the loan:

  • Be secured in first lien position.
  • Close with and through a title company.
  • Be at or under 70% of the after-repair value (not the current value).

Most of us are from small towns, too. So, we understand how frustrating it can be to find timely funding. That’s why we love to focus on small town flippers and rental owners.

So, if you have a property and want to get it funded and closed right now, our team is here to help.

Happy investing!

Hard Money is Scary

Hard Money is Scary

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Hard Money is Scary!

So, you just found the perfect house to fix and flip, but the only way your bid will get accepted is if you can close within a week.

That means you need to team up with the much feared and misunderstood creature: Hard Money.

AHHHH!

You’ve heard many rumors of this being, like it’s a big, ol’ fat trap that’ll suck your bank account dry. But fear not! Hard money isn’t as scary as rumor has it, especially if you take three simple steps to protect yourself.

Ignore the rumors and do a little homework.

What is hard money? Really. Understanding this type of loan will save you tons of headaches in the future. Because those who have a scary run in with it do NOT use it correctly. They might treat it like a regular bank loan or accept the first hard money loan offered to them. Both spell trouble.

Understand the REAL costs and benefits.

If you only look at interest rates, then yeah, hard money is more expensive than bank loans. But bank loans come with other costs, like time, contingencies, and paperwork.

For example, if you’re competing against five other investors, you have the power to bid lower and still win. Because sellers of fixer uppers don’t want to deal with banks. Banks take too long to close and require appraisals and inspections. Therefore, cash buyers usually win even if they bid thousands of dollars lower than the next bid.

Learn the difference between hard money lenders.

Hard money lenders come in all shapes and sizes. It’s like buying new furniture. If you only go to one shop, then you get what you get. But if you go to multiple shops, then you can compare different styles, prices, and terms.

Hard money lenders are no different. If you only call one, then you get what you get. And that, again, spells trouble. You need to shop around so you can compare lenders and find out what they offer…and what they require. And if you come across a hard money lender who offers an interest rate that’s too good to be true, then be prepared to face the scary monster that you’ve heard about. Because junk fees might come spewing out of it.

Bottom line, turn on the lights. Hard money is only scary if you sit in the dark and hope for the best.

Happy investing!