Tag Archive for: hard money lenders

Text: "Which hard money lenders check credit?"

Do Hard Money Lenders Check Credit?

A question for many beginner investors is: “Do hard money lenders check credit?”

The answer? Yes and no.

In the hard money lending world, there’s a big split in lenders’ approach to credit scores.

National Hard Money Lenders and Credit

On one hand, there’s the national lenders, the big hedge funds, the major institutions. For them, it’s all about credit and experience.

You end up being a number to these bigger companies – a data point. So they focus on the numbers that represent your success. The most important of these numbers is your credit score.

The larger the institution, the smaller the box they need you to fit in. So if you’re looking for money and your credit is below 680, you probably won’t fit in the box of national hard money lenders.

Local Hard Money Lenders

On the other hand, there’s smaller, local hard money companies. These local hard money lenders won’t check credit as the basis for the loan.

Most local hard money lenders look at you and your deal. They’ll want to know:

to see whether you have a good chance of making money from the deal.

If you’re investing while your credit score is lower, gear yourself toward these local lenders. There are plenty of these hard money lenders around – hundreds in the Denver market alone!

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

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:

How to Buy: Breaking Down BRRRR

The BRRRR Method

 

Ready to build up a rental portfolio and get cash flow on properties with zero money down? The BRRRR Method.

Check out this 8-step guide to BRRRR investments.

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Have you heard of BRRRR? Here’s our 8-step guide to rehab and rent undermarket properties for maximum cash flow in your real estate investment business.

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Buy

Rehab

Rent

Refinance

Repeat

 

Check out these other crucial steps to the BRRRR  of real estate investing:

 

 

Read more on the BRRRR Method on Hard Money Mike here?

Download our free BRRRR roadmap at this link. And for more resources, check out these videos from our YouTube channel.

 

Wholesale properties

3 Must-Know Answers to Finding Undermarket Properties

A real estate investor’s intro to wholesalers.

At the end of the day, successful real estate investing hinges on one thing: finding good deals on properties.

The #1 way to get those deals is through wholesalers. But how do you find wholesalers? And what should you do next?

What Are Wholesalers?

Wholesalers are companies that research and locate below-market-value properties. They find homeowners – through mailers, texting, or other means of marketing – that are willing to sell undermarket.

Wholesalers keep some of the properties they acquire, but they sell many of them off to real estate investors. That’s where you come in.

You can, and should, make wholesalers a profitable member of your investment team. Let’s talk about:

  • How to find wholesalers
  • How to get on their “A-list”
  • How to verify their numbers

1. Where Do You Find Wholesalers?

There are some really small wholesalers that find one or two properties a month. Others are huge companies that spend hundreds of thousands of dollars per month, finding hundreds of homes every year.

Generally, the only way to find wholesalers is to ask around about who is selling properties in your area. Here are three ways to do this:

  1. Search Google. Simple: look up “I want a house in” and your city name. You’ll get lists of people wanting to buy houses. These are the same people who will be selling them to investors.
  2. Use biggerpockets.com. Your best resource is other real estate investors. Log on and ask who the wholesalers for your area are.
  3. Join local Facebook groups. You can ask other investors who the wholesalers are. Or, you can look and see what people and organizations are trying to buy cheap properties. Those will likely be wholesalers.

Other investors are a good resource for finding wholesalers, but of course, they’re also your competition. Once you find wholesalers, your next step will be to find a way onto their A-list.

2. How Do I Get to the Top of a Wholesaler’s Preferred Buyer List?

Before they send out a property to their whole group, wholesalers will send it to their best buyers first. They will want to get rid of it as quickly and efficiently as possible. If they can sell it without having to coordinate property tours and indecisive buyers, they will. 

So, how do you get on that list?

  1. Know exactly what you want. Don’t show up uncertain. Come with either cash in-hand or a hard money lender. They will want a smooth, no-drama process.
  2. Find lenders they work with. This way, the wholesaler will be confident that the deal will close, close fast, and close with no issues.
  3. Close the deal. If you get under contract with them, follow through with the deal, and do it as fast as possible. Don’t get into a contract unless you know it’s what you want. 

In general, you’ll want to cause the least amount of friction possible. After all, you probably feel the same way: the people who make things easy and enjoyable are the people you’ll want to work with over and over again.

3. How Do I Know If I’m Getting a Good Deal with a Wholesaler?

You and the wholesaler will have different motivations in the deal. They need to make money, so they may be “optimistic” with the numbers they tell you. To protect your interests, you’ll have to be proactive and realistic.

Double check their numbers. This includes:

  • The current condition of the property
  • The cost of repairs to bring it to market
  • How long it will take to get to market

It’s also important that you go in knowing your numbers. It will make verifying their numbers a lot easier, and it makes the process smoother for them (see #2 of this list). 

If you’re not sure how to plan these financials for a deal, have a friend or a contractor help you get an estimate.

The Wholesaler and Investor Relationship

A wholesaler will be a valuable member of your real estate investment team. Do everything you can to stay on their good side, but also be prepared to advocate for yourself in every potential deal.

If you need extra help with evaluating cash flow for a property, download our free loan optimizer at this link, or check out this video series on our YouTube channel.

OPM Gap Funding

What is Gap Funding?

Fill in the financial blanks of your fix-and-flip! Learn about gap funding for real estate investors and where to find it:

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Gap funding is necessary to take your real estate investing to the next level. And gap funding lenders for real estate investments are all around you. How do you find them?

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You’ve got your property, you’ve got your mortgage… Now you just need gap funding.

 

Read/Watch this to learn who gap funding lenders are, and where you can find them.

 

What questions do you have about gap funding?

 

Read more here about Gap Funding on Hard Money Mike?

Learn more about gap funding and OPM with these videos.

 

 

5 Ways to Make Money in a Volatile Market

5 Ways to Make Money in a Volatile Market

5 Ways to Make Money in a Volatile Market

Check out our latest Market Watch videos here: https://youtube.com/playlist?list=PLb…

The current market is going CRAZY with increasing interest rates, rising inflation, and supply chain issues. As a real estate investor, how can you prosper in these times? In this video, we share 5 ways to make money in a volatile market. Check it out! STAY CONNECTED ========================

 

What is gap funding

What Is Gap Funding? And How Do You Get It?

When to use gap funding and how to attract lenders.

A mortgage covers the bulk of the cost of purchasing a new property. But what about all the costs in-between?

There are some big price tags in real estate investment that bank loans won’t usually cover. You’ll still need to find a way to pay for your down payment, the fix-up cost, and any carrying costs for the property.

How do you fill those gaps?

What is Gap Funding?

Gap funding is the money source you use to cover these extra costs in real estate. Private individuals can lend money to fill the gaps in your investment.

All real estate investors at any stage can utilize gap funding. Typically, gap funding is most useful to investors just starting out, who haven’t yet made or saved enough money to fund their own investments entirely.

However, we also see people who are already multimillionaires with years of investing under their belts use gap funding. It’s a great way to leverage investments at any level.

Where Do You Find Gap Funding?

You might find a few banks and other lenders who do gap funding, but the main way to get it is through OPM, Other People’s Money – think of it as Real People’s Money.

These people can be family, friends, or members of a real estate group. These people don’t necessarily have enough to fund your entire flip, but do have $20,000 to $50,000 sitting in an account or IRA. They don’t want to do the actual work and risk of investing, but they do want the potential for a higher return on their money than they’d get from a bank.

How Do You Get Gap Funding?

Getting people to loan you their money may sound easier said than done. After all, OPM is often either secured by second-lien or unsecured, so you wouldn’t put your money in that situation with just anyone.

There are a few key traits you’ll need to show to attract the people who can provide you with gap funding:

  • Respect their money
  • Protect their money
  • Be honest

Having these qualities will be the deciding factor in someone lending to you over another investor.

Respect Your Lender’s Money

Understand what your lender wants and expects out of the deal, and be sure they get it. Make them feel respected and confident with you handling their money.

Protect Their Money

Treat the money professionally – even more carefully than you’d treat your own cash. Be diligent in arranging the proper liens, proper insurance, and proper documents.

Be Honest

Tell your lender everything that happens with your project. They have a right to know what they’re investing in. It’s better to be straightforward and allow your lender to make their own decisions than to keep secrets about the deal until it comes back to bite you.

Grow Your Funding

If you make your lender feel good after the first transaction, they’ll want to come back for another. Good deals can lead to a web of funding. A lender who has a good experience with you will tell their family and friends that you’re a good person to lend to.

Respecting, protecting, and being honest with your OPM helps you grow. Investing is much easier with gap funding covered by OPM, and it’s possible to someday fund entire projects with OPM.

Learn More about Gap Funding and OPM

If you’re interested in growing your real estate investment business, check out the following resources:

Download our free OPM checklist at this link.

Learn more about gap funding and OPM with these videos.

tricks to help sell flips in a slow market

Tricks to selling a home in a slowing market.

How do you sell a house in slow markets?

A few tricks from past down turns.

Age and experience helps every once in a while and this is one of those times.

I have been through some tough markets over the past 30 years in this business.

So when clients start asking for tricks to help sell homes in slower markets…I offer strategies like these that have worked well in the past:

  1. Don’t cut the price but try buying down your borrowers interest rate. A lot of times paying one or two points toward their interest rate will help them qualify and give them a 30 year benefit (the lower rate).

    Example. I just spoke with a client with a home in a smaller community with a home priced over $600k that is stalling. He was going to drop the price $20k to help it move. I suggested offering to pay 2 points to buy down the buyers rate. This may only cost him $8 to $12k over the $20k and get the same result. Just depends on the size of loan the new buyer will need.

  2. Give an incentive to the realtors. Sometimes just a $5k incentive to realtors will get them to push your property to their buyers over the competition. So if a buyer is looking between a couple homes get their realtor on your side.
  3. Do a combination of lowering the price, buying down the rate and giving the realtors a bonus.

    Make your property stand out from your competition.

    The markets will slow down and carrying homes longer than you expect can cost more than incentives.

    Be aggressive and get it sold now. There are going to be better deals for you in the near future.

    Rates are not going down anytime soon so we need to adjust to the new reality…and still make money.

    With rates going up prices will come down.

    Don’t be the last home looking for a buyer.

THE GOOD NEWS.

In the next 6 to 9 months we will see the beginning of a buyers’ market.

Prices will go down and more opportunity to make that generational wealth will increase…for those who are prepared.

Be prepared. Be money prepared. The deals will be there.

Those with easy, fast money will create generational wealth.

This requires a mix of bank loans, hard money loans and most important real OPM (real private money to fill the holes). You will need them all.

Start now and be money prepared. If you wait it may be too late (the large funds may beat, you to the homes).

We can help. 30 + years of working with banks and private money sources at your service.

Money is the FUEL to propel your business past your competition.

We will be helping those who want to prepare with DIY or mastermind type groups.

This includes getting your credit in line and lining up the funds to close on what you want when you want.

If you want to be prepared email me at mike@thecashflowcompany.com and right in the subject line “Be Prepared”

Happy investing.

Fix and flip market watch June 2022

Fix and flip market watch June 2022

Where are the markets for fix and flips and what can we expect in the next 6 months.

I address these questions in this months market watch.

We see signs of less overbidding on homes as interest rates continue to climb.

Median price range homes that have quality of work completed are still moving in days, but larger homes especially in more rural areas are starting to sit.

There is a storm we will have to get through over the next 9 months to figure out our new markets.  After that real estate investors should start to see better deals available to them too flip.

This will weed out some investors and leave more opportunity for the ones who plan wisely.

Looking for other videos on the money side of investing?  Check out our Youtube channel via this link.

How real estate investors can quickly raise their credit score

How real estate investors can quickly raise their credit score.

3 Simple Ways to Boost Your Credit Score Fast

Leveraging your real estate investments just got easier with these 3 quick ways to raise your credit score.

Maybe you’ve already noticed it.

Larger lenders are getting into the fix-and-flip hard money space. And many of these companies require credit scores as their underwriting criteria.

In this landscape, your credit score decides the speed and effectiveness of your journey to fix-and-flip financial freedom. Your credit score will determine your rates, leverage, and overall income from your real investments. Good or bad, your score impacts every step of your financial process.

So how can you raise your score in a short amount of time?

Three quick ways bump up your score are to:

  1. Add more credit to your line.
  2. Get authorized on someone else’s good credit account.
  3. Go private – get money from somewhere else to pay off your debts long enough to apply for more credit.

If you would like to read the full article please click here.

For more tips on building good credit and maximizing real estate investment leverage, check out these helpful videos on our YouTube Channel. Or you can download our Credit Score Checklist by following this link.

Happy investing.