Tag Archive for: Hard Money

What Can You Do With A Hard Money Loan?

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

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

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

Fix and Flip Hard Money Loans

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

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

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

Gap Funding with Hard Money

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

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

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

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

Project Completion Loans

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

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

Land Purchase and Development

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

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

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

Hard Money Loans for Business Needs

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

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

First Time Investors or Poor Credit Scores

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

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

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

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

Hard Money for Unique Projects and Situations

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

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

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

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

Hard money also works well for mixed use commercial projects. 

Wholetail and Transactional Deals with Hard Money

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

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

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

The Benefits of Being Outside the Box

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

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

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

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

You can also check us out on our YouTube channel.

Happy Investing.

Hard Money Loans for New Investors

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

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

What are hard money loans? 

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

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

Hard money loans can be used for many things:

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

Pros of Hard Money Loans:

1. Speed

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

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

2. Upfront Financing

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

3. Flexibility

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

4. Higher Financed Amounts 

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

5. Property-Focused Approvals

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

Cons of Hard Money Loans

1. Higher Costs

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

2. Shorter Terms

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

3. Limited Availability of Hard Money

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

Hard Money Resources for New Investors

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

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

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

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

Additional Questions and Research

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

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

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

The Funding Ladder: How to Get the BEST Real Estate Financing

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What does it really look like to get the best real estate financing? Let’s go step-by-step.

Hard money is a stepping stone.

You start here. But you also need to know where you’re going.

One of the most common questions we get from beginner real estate investors is:

“Who can I borrow money from? How do I step out from just using hard money?”

We want to get you started with the money that makes sense for you now – but we also want to show you how to work up to Wall Street money, OPM, or even funding with your own cash.

We think of this journey as The Funding Ladder. Let’s go over what beginners should know about real estate financing – and how to get to each rung of the ladder.

The Importance of Real Estate Financing

Funding is at least half of what makes investing successful.

Yes, you have to buy good properties and get them at a good number. But the right funding is what truly seals a deal.

  • Sometimes that means the funding is fast, so you can buy the good, available properties that need a quick close.
  • Sometimes it’s funding that’s cheap. Cash flow is king, and lower-cost financing increases your cash flow.
  • Sometimes it needs to be flexible. It needs to fit what you can apply for and get.

The Funding Ladder: 6 Levels to the Best Real Estate Financing

As you go from level to level, you accumulate more money because you save more money. Every time you step up, you’re going to put more money into your pocket, have more deals available, and at better pricing.

Here are the 6 rungs of this funding ladder.

#1: Partnerships

Typically, most people will start in either partnerships or hard money. 

Partnerships are great because you don’t have to provide any of the funding. The partner will provide all the funding – and maybe even some expertise. The negative about a partnership is typically they’re going to take at least 50% of the profits and probably be a little too involved in the project.

But when you’re starting out and you need some experience and you don’t have the money, this is a great way to go too. You could do two or three deals with the partner, build up your experience and cash, then move to the next level. 

#2: Hard Money

Secondly is local hard money.

This is asset-based lending. For real estate investors, this is what hard money used to be until they started changing the name to private money. Now, sometimes it gets a little confusing. Hard money, private money, fix and flip loans, rehab loans – they’re all referring to the same thing.

What you get from hard money is true investor-grade financing where they lend a higher loan-to-value, so you don’t have to put as much into the property. 

They will be flexible. They will look at unique deals: land or small commercial or any type of unique property. Local hard money likely won’t care much about your credit score – so it’s a great option if your score is sub-700. 

Additionally, hard money lenders care less about your experience. As long as your deal is sold, they might not require you to have completed any projects before.

Hard money is typically fast also. So if you need to close something in five days instead of 10 or 30, local hard money is the best real estate financing. 

The cons of hard money are that:

  • They’re smaller lenders with a smaller fund – so it’s possible for them to run out of money.
  • They tend to be more expensive. It may cost you 1 – 1.5 more points than when you go with Wall Street private money.

#3: Wall Street Private Money

Next is what we call Wall Street Private Money. These are large firms.

The best part about these is they have seemingly unlimited funds.

They have similar interest rates as local hard money. Sometimes hard money is actually cheaper on the rates, but you’ll find private money 1-1.5 points cheaper.

The other benefit of private money is it could lend in multiple states and multiple regions. Typically, your partnerships, hard money, or even local banks will not lend out of their region.

They typically also could do longer terms. It’s not uncommon for them to do a 12 or 18 month. We don’t suggest that you take longer than 6-9 months on a fix and flip loan because the interest eats away at your profits every month. But the option is out there with private money.

Now, the negatives for the Wall Street private money:

  • They have a box. If you don’t fit in their box, they won’t make their funding work for you. They find enough people who do fit in their box. So, if a property is unique, rural, etc, then they typically won’t bother.
  • Typically, they’ll require 3-5 years of experience to get their best rates and terms. 
  • They’re also going to require that you have a decent credit score. The actual requirement changes, but right now it’s a minimum of 660, with a preference of 720+.
  • Wall Street private money lenders won’t give you any escrow advances. When you close, they may fund 100% of your escrow for your fix-up, but they won’t give you any advance to start. So if you have like a $60,000 budget to fix up the property, they want you to put in that first $20,000 and then they will reimburse you.

#4: Local Banks

The next rung on the ladder of the best real estate financing is local banks.

There are a lot of small to mid-size local banks that love to lend to real estate investors. Rates are high currently from the Fed, but banks are still 1-2 points cheaper on the interest rate even compared to the Wall Street money points’ cost.

The negatives with local banks are:

  • The speed. It can take two to four weeks minimum for them to fund a deal, which could cause you to miss out on deals. 
  • Local banks require certain credit scores, too, like private money does.
  • They’ll also require money down and investing experience.

#5: Real OPM

Next is what we call real OPM (other people’s money). This is truly the best real estate financing. Regardless of your experience level, you can work toward getting OPM. Any rung on this ladder benefits from Other People’s Money.

Real OPM is money from real, normal people, not institutional lenders. It could be family, friends, or other people in your community.

These people want better returns for their money than they can get at a bank. Lending to you can be a way to get that secured return. out there looking for better returns. 

You can also get a much better rate with an OPM lender than at a bank, credit union, private money, or hard money lender. There’s nothing out there that’s faster, cheaper, or easier to get.

Once you build an OPM relationship, your lender will want to give you money as much as you want to get it. It’s simple to call them up and let them know you found a good deal. There’s no underwriting, no credit checks, and oftentimes they can fund the full amount you need.

It’s important to attract and keep your OPM lenders (if you want more help setting this up, reach out to us – this is one of our specialties!).

#6: Lines of Credit

As you accumulate properties, you’ll want to move on to lines of credit as a funding source. This is where banks (whose loans are slow) can offer you a product that’s quicker than the rest.

A bank line of credit is like a big HELOC, except instead of being on one property, it spans 5 or 6. This line of credit is immediate funding – which is great for fast auction closes.

When you have a large line of credit at your disposal, all the wholesalers and local sellers will go to you first because they know you’ll give them a fast close. 

How Do You Get the Best Real Estate Financing?

We want people who come into this business to understand that hard money is a stepping stone. They’re going from here, but they also need to know where they should be headed. 

We want to educate people, make them comfortable, confident real estate investors, and help where we can along the way.

Have questions about any point in this process? Want to talk with someone about how to go from where you are now up to the next step? Reach out to us at Info@HardMoneyMike.com. 

Happy Investing.

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.

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.

How Much Hard Money Can I Get? A Guide to Borrowing

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How much hard money can you get from lenders? Here’s a brief guide.

Which hard money lenders lend the most?

That question may mean two things to two different investors.

Some people want to know: How much hard money can I get? Five million dollars? Ten million? For other people, the question is: What is the max loan-to-value I could borrow? 

Let’s go through the 3 types of private money lenders, who lends the highest dollar amounts, and who offers the best LTVs.

3 Types of Hard Money Lenders

There are 3 types of hard money lenders:

  • Local: Hard money lenders near your state, city, or region.
  • National: Newer in the hard money scene. They’re backed by Wall Street and lend across the US.
  • Real OPM: A real person you know who has cash they can lend to you for a return.

How Much Does a Hard Money Lender Lend?

First, let’s look at who lends the most as far as dollar amounts.

How much hard money can you get? This comes down to the fund availability and lending capacity of the lender.

National Lenders Loan Amounts

Which lender has the capacity to lend big dollar amounts? That will almost always be national lenders.

These lenders are backed by hedge funds. This means they have a seemingly endless supply of money for loans. (The catch is they only supply loans that fit inside their box, which tends to be fairly limiting).

Larger loans might be $1-10 million and up, even as high as $150 or $250 million. National, hedge-fund-backed lenders will be your only option if you need these amounts.

Local Lenders Loan Amounts

Regional lenders’ loans come in many sizes, but the majority only lend under $1 million. The affordability sweet spot for these lenders, however, is between $100,000 and $300,000, depending on your area.

Real OPM Lenders Loan Amounts

Remember that OPM involves a real person. This person has money stowed away in an IRA and other investment accounts. They want to lend to get a better return, but their pool of funds is definite.

Most OPM loans range between $25,000 to $50,000 – perfect for gap funding, but not always for a complete project. There are some individuals with $500k to $1M to lend, but ultimately, that cash runs out fast in investing.

An OPM lender will be the first one to run out of funds (and the one with the smallest dollar amounts to lend).

What Is the Max LTV You Can Get for Hard Money?

When you think of lender loan amounts, you might think of the gross dollar amount. But you should also think of the LTV.

LTVs are very dependent on market conditions. Now, at the end of 2022, all lenders have tightened up LTVs.

  • National hard money lenders have tightened the most on max LTVs. Hedge-backed hard money lenders will offer somewhere between 80% and 90% of the value of the project’s cost. This number will be dependent on your credit score, experience, and other criteria.
  • Local hard money lenders offer the next best LTVs. At Hard Money Mike, for example, we understand our local markets and are still lending at high loan-to-values. It’s dependent on the loan-to-ARV number, but most local lenders are offering LTVs from 80% to 100%.
  • OPM lenders tend to give the best LTVs. If they can cover the entire cost of the project, they likely will, with minimal requirements. OPM is more trust-based, so it operates more flexibly than actual loan companies.

You’ll certainly need all of these lenders to be successful in real estate. The right lender will be different for each project.

How to Calculate How Much Hard Money I Can Get?

Download our free loan optimizer here. With this tool, you can enter the numbers from 3 different lenders to compare the cost of borrowing from each one.

We want you to find the right lender to make more on your project. There are some people who would like to charge you as much as possible to make maximum profit on each loan. We would rather see you have a successful deal and a long, happy real estate investing career.

Happy Investing.

When NOT To Use Hard Money For Real Estate Investing

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Every form of leverage has its time and place. Here’s when not to use hard money.

You need all kinds of leverage as a real estate investor. Different investment problems will call for different kinds of debt solutions.

Hard money, banks, private equity, and OPM all have their time and place. However, there are times when certain lending methods just aren’t smart.

Hard money has a lot of important uses, but when should you not use hard money?

1. When It Costs More

The main time when not to use hard money is whenever it’s the more expensive option.

You get into real estate to make money. Saving money on the leverage for a deal is a top priority.

Hard money is one of the most expensive forms of leverage. If using hard money costs you more than any other lending option, that’s your first sign not to use hard money.

When Is Hard Money More Expensive?

Private equity funds and hard money lenders typically have around the same pricing. The real gap comes when you compare bank loans to hard money.

In a previous article about when you should use hard money, we went over an ideal situation for hard money. In this example, the speed of a hard money loan can get you such a good deal on a property that you wind up saving money.

However, that doesn’t always happen. The cost of the property might not change whether you have a hard money loan or bank loan. You might have plenty of time to wait for the cheaper but slower loan from the bank. In those cases, you almost always should not use hard money.

The interest rate and origination fee for hard money will almost always make it the more expensive loan. Here’s a side-by-side comparison of a hard money loan vs bank loan for the same property.

As you can see, when all else is equal, a hard money loan would cost you over $9,000 more.

Always, always go with the cheapest source of funds. In typical situations, bank loans and OPM will be cheaper than hard money or private equity.

2. When You Have Time

If speed isn’t a factor in getting a good deal, that’s a sign when not to use hard money.

Sometimes, speed at closing can mean the difference between getting a property and not getting it. Or, closing fastest could mean saving tens of thousands of dollars on a deal. Hard money is a good option then.

However, that’s not always the case. Sometimes a seller is willing to wait several weeks for a bank loan to clear in order to take a higher bid.

If time isn’t a consideration, then you probably shouldn’t use hard money.

3. When You Have Real OPM

OPM is money you get from real people you know. If OPM is available to you, you should always use it instead of hard money.

This form of leverage combines the speed and flexibility of a hard money lender with the price (or cheaper) of a bank loan.

If you can source and secure an OPM loan for a project, then there’s usually no reason to get hard money.

4. When You Already Have Money

It’s never smart to use a hard money loan when you already have cheaper funds available – especially when you have cash.

There’s no reason to pay a 9% interest rate when you could pay with a 0% rate, or use a cheaper line of credit like a HELOC.

A time when not to use hard money is when you have an equally flexible funding source that costs way less. In general, when you have cash available, stay away from leverage at all.

How Else Do I Know When Not to Use Hard Money?

What’s the right leverage for you? Are you doing it right? Are you using the best funds for your project?

Join our weekly call-in here, every Thursday at 1:15 PM to 2:15 PM MST to find out! Bring a specific question about a deal, and we can talk through the best option for you.

Happy Investing.

What Is the Best Real Estate Loan For Investing?

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10 things to look for to find the best real estate loan for your investing.

You can get confused fast with real estate funding. 

What’s the difference between hard money and private money? Institutional lenders and bank lenders? And what even is OPM?

Most importantly – how do you know which lending option is best for you?

Our goal is to make sure you use the correct leverage for your real estate project:

  • What will fit your project?
  • What will be the most profitable for you?

Realistically, you need a little bit of everything.

Let’s go through the nuances of each leverage type, so you know the best real estate loan for your investments. Here are 10 qualities of real estate leverage to consider.

1. Speed

In real estate investing, most of your deals come down to speed. If you can close faster than another bidder, you can get the property – even if the other person offered more money.

Typically, the fastest lending options will be hard money and real OPM. 

OPM is using real people’s money, from family, friends, or anyone with money to lend. If you build a relationship with the right OPM lenders, this can be your fastest funding option. OPM can be one phone call and bank transfer away.

Although more expensive, hard money lenders can save you money in the long run with the savings you get from closing quickly on wholesale properties. Hard money lenders can potentially get you money within days (sometimes quicker).

Institutional lenders are fairly quick, typically taking two or three weeks, sometimes four.

Banks are usually the slowest at four or more weeks (unless you already have a line of credit set up, like a HELOC).

2. Credit Score

Credit is a major factor in the loan process. Requirements for credit scores have gone up over the last few months as money tightens. 

Institutions and banks have strict credit score requirements. The target for acceptable credit is constantly moving. Currently, you’ll have a tough time finding any loans with a score lower than 680. The best loans are available to people with a 740 and above.

Hard money lenders will check credit to make sure you’re not defaulting. But your actual score doesn’t have much bearing on your ability to get a loan.

OPM lenders aren’t as concerned with your actual credit score. OPM requirements will vary from person to person. But as long as you’re responsible in protecting their money, you can get an OPM loan.

3. Experience

Have you been in business for 2 years? Have you done enough transactions?

The toughest on experience are banks and institutional lenders.

Institutional lenders typically require three to five transactions over a three-year period. They’ll still consider you if you have less experience than that, but they’ll need a higher down payment.

Banks are the strictest. They usually want you to have five completed projects in recent years, plus at least two years of tax history on investment properties.

Hard money and OPM are the easiest on experience.

Hard money lenders care that you have a profitable deal. OPM lenders care that they get a return on their money. Neither lender will be overly concerned with your experience level. They’re more understanding that “you gotta start somewhere.”

4. Income

What lenders are concerned with your debt ratio? 

Banks are the only lenders that are always concerned with your income. 

Institutions look at the money you have in the bank, but not necessarily what you have coming in as income.

Hard money might look at your tax returns, but it won’t make or break your loan.

5. Underwriting

How does each lender look at your whole file? What is their criteria, and is it similar from lender-to-lender?

Institutional lenders have fairly consistent underwriting. They all basically require experience, 10 – 20% down, etc.

The other three types of lenders vary drastically.

Banks will always have some sort of requirements. But it’s different between large banks and small banks. Local banks will always be more interested in lending to investors.

Hard money and OPM both vary, too. You have to get to know the lenders in your area to get a feel for their requirements.

6. Flexibility

What if you need a loan for a rural property? Or what if some other unique situation pops up? Which lenders can be flexible with that.

Institutions and banks are the most fixed in what they offer. Institutional lenders loan only within MSAs. If a property is outside of city limits, they won’t offer any loans. Similarly, banks typically only lend within their footprint. You’ll have to talk to banks near you to learn those service areas.

Of course, hard money and OPM are more flexible with locations, funding plans, and more.

7. Pricing

Every loan has a cost.

Bank loans have a lot of limitations, but this is where they shine. Interest rates and origination fees will almost always be lowest at banks. Interest rates average around 5.5 – 6%, and fees are around 1 – 1.5 points.

OPM is also pretty cheap, and more flexible than banks. Your interest rate will depend on your lender, but there are usually little to no points with real OPM.

Institutional and hard money lenders will be the most expensive, with interest rates around 10 – 12% and fees at 2 – 3 points.

8. Verified Funds

It makes sense that lenders want to know that you’ll have enough money to pay them back. But lenders go about verifying funds differently.

Institutions and banks typically require two months of bank statements. They want to prove you have the money for the down payment, rehab costs, and any carry costs. These lenders emphasize how much money you have and where it came from. They often don’t allow gap funding.

Hard money and OPM lenders, however, are fine with gap funding. These lenders’ requirements vary, but generally, funds are not a major consideration.

9. Funds Available

How much money does the lender have to offer? Do they ever run out of money, or tell you you’ll have to wait a couple weeks before they have funds?

Typically, the places that have “unlimited” money are institutions and banks. Institutions are backed by Wall Street funds, and banks can always borrow from the Fed.

Hard money and OPM are a bit more limited. Hard money fund availability is based on how many investors they have. Real OPM is limited by the bank account of your lender. A downside of hard money and OPM is that money may run dry; there’s no guaranteed constant flow.

10. Multiple States

If you’re an investor who does deals in multiple states, who will be able to consistently help you? If you live in Oklahoma but invest in Texas, which lender can you count on?

Typically, institutions are your best bet for multi-state investments. If you need someone to grow with you state-to-state, this is your main option.

Many hard money lenders are local, and they focus their investments in a single community. Similarly, banks only lend within their region.

OPM’s multi-state lending ability depends on the client, but there is flexibility.

So What Is the Best Real Estate Loan?

All in all, there is no “best” real estate loan. Remember, you need all types of leverage for a flexible, lucrative investment career.

Each loan has its limitations and perks. Here’s a quick overview of each type of real estate loan.

More Info on Real Estate Loans

If you’re left with questions about the best leverage option for you, we’re here to help.

Email us at Mike@HardMoneyMike.com with questions about your deal.

Or join our weekly call here, every Thursday from 1:15 PM – 2:15 PM MST.

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How to Calculate Gap Funding

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When your loan doesn’t cover 100% of your project, how do you calculate gap funding?

How much do you need for gap funding? It depends on each project.

Calculating Gap Funding Needed for a Project

The way to figure out the gaps in your project is simple:

(Cost of Property + Rehab Costs) – Hard Money Loan Amount = Gap Funding Amount Needed

If the property costs $200,000, but your lender gives $140,000, there’s a $60,000 gap you’ll need to cover. You can:

  1. Pay the $60,000 out-of-pocket

Or

  1. Bring in a gap lender, enabling you to buy the property with 100% financing. You would likely use part of this loan for the down payment and part for construction costs.

How to Calculate Construction Costs

Most hard money lenders use the ARV (anticipated retail value) rather than LTV (loan in relation to the current sale value).

In case your loan is for LTV only and doesn’t take into account construction costs, here’s how you would calculate those costs for an undermarket home:

ARV  –  Actual Cost of Property  =  Maximum Construction Budget

It’s important for you to work these numbers and know your budget up-front. Keep in mind, it’s always better to err on the generous side with your numbers. You want to be sure you can get done on-time and within the budget allotted by your hard money and gap lenders.

How much you’ll spend on construction is important when you calculate gap funding.

Read the full article here.

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