Tag Archive for: Real estate investing

What Is ARV? (And How Does It Impact Real Estate Deals?)

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How does value-add property investing work? And what is ARV?

After-repair value (or ARV) is one of the biggest concepts used in real estate investing.

Let’s talk about what ARV is and how to calculate it.

Value-Add Real Estate Investing

The type of real estate investing we specialize in involves value-add properties.

This means you buy properties at a lower price, change them in some way, then sell for more. This could look like:

  • Splitting up a rental into multiple units
  • Adding a bedroom
  • Doing needed repairs and renovations
  • Etc.

The property’s value at the end of your project will be more than the price you originally bought it for.

That higher ending value is referred to as the after-repair value. This value is decided by either: 1) what it can sell for on the open market, or 2) what it will appraise for (if you’re going to hold the unit as a rental).

How to Estimate ARV

All of the financials of a value-add real estate investment are dependent on the ARV. How do we decide the ARV number? Well, it’s really just an educated guess. Let’s go over some of the key factors used in estimating an after-repair value.

The Amount of Work and Quality of Work

The work you put into a property is what adds the value. So, how you’re changing the property is a good indicator of the ARV.

For example, adding a bedroom or granite countertops will impact the future value more than just a fresh coat of paint.

However, the planned work can’t be the only thing ARV is based on. After all, you can’t guarantee the quality of work will really turn out to be worth it. So there’s another important factor in estimating ARV.

Comparing to Similar Properties

To make our estimate slightly more accurate, we’re going to look at properties that are just like yours but finished. Here are the criteria you’ll use to calculate ARV with comps:

  • The same subdivision. Comp properties, at most, should be within a half mile of your property.
  • The same size. What’s the square footage? Don’t compare a 1,200-square foot place to a 2,000-square foot place.
  • The same condition. What will your property look like when it’s finished? Look at other properties that already look like that.
  • Sold within the last 3-6 months. It’s not accurate to use the list price for a property that hasn’t sold yet. You can only guarantee the actual value of a property when it’s been purchased in your market.
  • Sold without concessions. Concessions mean the seller is helping the buyer purchase the property. Some sellers will contribute anywhere between 3% and 6% of the sale price to help the buyer cover closing costs (especially in a FHA or VA market). This is important to watch out for in comps, because if a house sold for $200k with a 5% seller concession, then the seller was really only able to sell if for $190k.

Market Conditions

We usually have a ballpark idea of what the market will look like in the next 6 or so months. This is important to factor into your ARV.

For example, 2022 saw a market decline after May. So, if you were comping out a property in June of 2022, you’re expecting the market to get worse, so you factor that in. Maybe you take another 5-10% off the ARV you calculated based on comps to set a realistic expectation for the future market.

Why Is ARV So Important?

When you’re calculating the ARV of the property, remember to be truthful with yourself. Work with comps to get a full picture of your actual after-repair value. Fudging these numbers only hurts you.

ARV has a direct impact on the amount you can get from a lender. Accurate after-repair value is important to your investing financials. You can read about how ARV affects LTV here.

You can also use this free tool to calculate your lendable amount on a property based on ARV.

As always, reach out to Info@HardMoneyMike.com with any questions.

Happy Investing.

70 Percent ARV: Why Can’t I Get More for My Real Estate Deal?

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The real reason your fix and flip lender won’t give you more than 70% ARV…

One thing new investors ask all the time:

Why do lenders only lend 70 or 75%?

Let’s go over the numbers and see how lenders come up with that 70% number.

What Is ARV and the 70% Rule?

The number we’re talking about is what percentage of the after-repair value (ARV) a lender will give you.

The ARV is what you can sell a property for after flipping, or what it can be appraised for on a refinance for a BRRRR rental.

Here’s an example of what a 70% ARV might look like:

You buy a property. The market shows it will sell for $200k after it’s fixed up. If your lender offers 70% of the ARV, that’s the maximum amount your loan could be. In this case, 70% of $200k is $140k. So you can get up to $140,000 as a loan when you buy this property.

So that’s $60k worth of value that’s not being covered. This is where investors ask the question… There’s still a lot of money here. Why can’t I borrow against that extra $60,000?

Let’s dive into why lenders stop at 70%.

Why Do Lenders Stop at 70% ARV?

If lenders stop at 70% of the ARV, what happens to the remaining 30%?

Profit

First, is profit for you. Why do you invest in real estate? Because you want to make a profit. And if you don’t factor in profit at the beginning of your deal, there’s not going to be any leftover for you.

So as lenders, we build in a 10-15% profit margin for you. Let’s say on average, it’s 12.5%. That amount comes from the 30% of the ARV not covered by your loan. 

In our example $200k property from earlier, 12.5% is $25,000, which will be profit for you at the end of the project.

Realtor

There are a few other people involved in this process, especially on the selling side.

When you bring in a realtor, you can expect to say anywhere between 4.8% and 6%. To keep it easy, we usually estimate 5%.

So of your ARV, we’ve already taken up 17.5% between your profit and your realtor.

Closing Costs, Cost of Funds, and More with a 70% ARV

Closing costs vary, but it’s safe to assume they will cost 1.5%.

With all the costs so far, we could be looking at anywhere between 17% and 22%, but an average of 19% total.

After you’ve purchased the property and started fixing it up, there will be more costs. Two major areas that should be factored into your budget are interest on your loan and a general overage budget.

Between these extra costs, we’re sitting at an average of 29%…

Which is exactly why lenders leave 30% of the ARV off of the loan they give you.

Making Sense of a 70% ARV

With real estate investing, the money’s in the money. Understanding and feeling comfortable with the numbers is the fastest way to start getting into great deals.

You don’t want to get into a deal that won’t be profitable for you. If you won’t get at least 10-15% profit, why do it? Your lender should leave space for your profit and other costs that come up.

Have questions or a deal where you need help with the numbers? Contact us at Info@HardMoneyMike.com, and we’d love to see how we can help.

You can also get more resources about real estate investing on our YouTube channel.

Happy Investing.

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.

What Is Gap Funding? (What to Do When Your Main Loan Leaves Gaps)

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What is gap funding? Let’s go over 4 types of small loans: bridge, reserves, rehab, and usage.

The gaps lenders leave on real estate projects are getting bigger.

They’re asking you to put more money in. Leave bigger reserves. Have better credit scores.

We see this daily as we help clients with small loans. Let’s go over some of these small loans that we call gap funding:

  • Bridge loans
  • Reserves
  • Rehab costs
  • Usage loans

Bridge Loan Gap Funding

Bridge loans: if you have a project that’s either on the market or going on the market, but you need to get into your next project. You have to keep making money, but your capital is tied until that first property sells. 

These bridge loans are usually between $10,000 and $75,000, used for a down payment on your next project.

How it works: you put a lien on both properties, then when the first one sells, you pay off the bridge loan. This can keep you going from flip to flip with no pause in projects.

Reserves

Another spot in the real estate investing process for gap funding is reserves. Banks are requiring more money in reserves to cover any unknown expenses or payments.

We just did two loans to help with reserves. 

One was for a flip. Someone needed to borrow money. They had a property on the market. They’re buying their next one, but the lender that was funding their new deal required six months of reserves. We did put a second mortgage, on the property. When it sells, we’ll get paid off, and they’ll be onto their next deal. 

The second was an investor who needed reserves for a long-term loan. He was refinancing his investment property, but he was short on reserves. We were able to use another property in his portfolio to do a loan. Once the cash-out refinance is done, he’ll pay us back.

Funding Gap in Rehab Budget

Maybe your primary loan didn’t cover as much of the fix-up process as you ended up needing. This is another instance where gap funding comes in handy.

We also had another unique situation with a client recently. The borrower got the money in their escrow account when they set up the loan… but the lender would not release any escrow funds until he did at least a quarter to a half of the project. Yet he couldn’t start the project because he needed the funds from the escrow.

We stepped into this chicken-and-the-egg situation and helped him with a lien on another property to give him the funding he needed to kick off the project. When his other lender released the escrow, he was able to pay us back.

Usage Loans

Sometimes the requirement from banks that kills investors is the credit score limits. For many investors, this means their credit usage is too high – since they use lines of credit for their real estate projects.

We had a client out of Michigan who was trying to get a DSCR loan. He bought a property, fixed it up, and was going to do a DSCR refinance to get all his cash back.

But he used all personal credit cards for the project. This tanked his credit score. So when he applied for the DSCR loan, he was at an almost 10% interest rate with 3 points.

To help him, we did a quick usage loan to pay off those credit cards and let his credit score go back up. Then he can get into a long-term loan at a good rate with fewer fees.

Other Small Loans for Gap Funding

We’re able to help people in any of these circumstances who need a small gap funding loan.

In fact, in any situation where you need a loan and have a good property to put a lien on, we may be able to help you.

If you have any questions on this or other loans, reach out to Info@HardMoneyMike.com.

Happy Investing.

70% ARV: The Hard Money Trick That Could Cost You

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When a hard money lender tells you they’ll give you 70% ARV, what does that really mean?

Hard money lenders often say they lend up to 70% or 75% of the after-repair value (ARV) of a property.

Did you know that’s often misleading?

When private lenders (big hard money lenders backed by Wall Street funds) say they lend up to 70% of the ARV, there’s a slight trick that some borrowers miss.

Let’s go over the differences that “70% ARV” might mean for different lenders, so you can maximize your LTV.

The Full Cost of Your Flip

One thing to remember when you’re looking at fixed and flip loans: there are a lot of other costs besides the down payment. You’ll also have closing costs, points, interest, insurance, and other expenses not included in the amount most lenders give you.

We want to make sure we minimize how much comes out of your pocket so you can do more deals or at least get to that first deal.

The 70% Myth

Typically, most lenders in this market will lend you up to 70% of the after-repair value. This ARV is what you’ll be able to sell a property for (not buy it for). It’s how much it should be worth after it’s fixed up.

But here’s the caveat big hedge fund hard money lenders have:

That total 70% of the ARV is split between the purchase price and rehab. And typically, they’ll do 100% of rehab costs but limit the purchase price to 85%.

And this is for their best clients. You’ll see these LTVs cut, depending on your quality, the size of your market, and the location of your property. Smaller markets can go down to 80/90 for purchase price/rehab. Rural properties could go down to 65% overall – if they’ll even lend to you at all.

So the 70% is only for the best properties in the best areas. Let’s dive in and find out exactly how they don’t get to that 70% that they promise you.

Example of the 70% ARV Myth

Let’s look at a property that has an ARV of $200,000. This is what you think you’re going to sell it for, based on the comps.

If our hard money lender is going to give us 70% of it, that’s $140,000 max.

This works for most deals. As long as you follow these budgeting guidelines:

  • Real estate agent: 5%
  • Lender fees: 8%
  • Closing costs: 2%
  • Profit: 15%

Now, let’s say you’re purchasing a property for $120,000 and you’re going to put $20,000 into rehab. This gets you right to the $140k your lender will give you.

But now we got to remember one thing:

Best case, they’re only going to lend you 85% of the purchase price. In this case, that’s only $102,000. (They’ll still cover 100% of the rehab in escrow). 

This leaves $18,000 you’ll be paying for out-of-pocket. Plus, many of these lenders require 6 months’ worth of reserves (we’ve even given short-term loans to investors just so they had enough reserves to get a loan from one of these other larger hard money lenders).

Hard Money Lenders With a True 70% ARV

A smaller, local hard money lender like Hard Money Mike has a different approach to LTVs. Let’s walk through this example with the same $200,000 ARV property.

When we lend 70% of the ARV, that’s a true $140,000 for the right client and deal. This means the purchase is fully funded – plus you get the $20,000 in escrow for rehab costs.

Finding the Right Hard Money Loans

The offer from the bigger lenders will be right for some people. But if you want to maximize your leverage, small hard money lenders like Hard Money Mike give you an alternative.

Want to see if we have the right loans for your project? Reach out to us at Info@HardMoneyMike.com.

Happy Investing.

How to Save a Stalled Real Estate Project

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

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

Stalled real estate projects most often happen when:

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

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

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

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

Funding the Escrow on a Stalled Real Estate Project

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

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

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

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

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

Funding an Over-Budget Fix and Flip

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

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

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

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

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

Now, he won’t miss the springtime market.

Why We Do Loans on Stalled Real Estate Projects

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

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

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

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.

How to Get That Property Done: The “Finish a Project” Loan

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4 “finish a project” loan case studies.

One of our most popular loans is what we call a “finish a project” loan.

We call it that because… That’s exactly what it does! We want to help you finish your real estate project no matter what comes up.

Local hard money lenders like us are different than private money or banks. We finance things no one else will.

Let’s go over a couple examples of how this loan has worked with our past clients to see if it’ll fit with your current project.

Finish a New Construction Project

Once a new build is started, banks don’t like to give out more loans partway through. This is the situation our client James found himself in.

He was building a house for himself. After he bought the property and got started, he became boxed in and ran out of money. He told the bank, “I have a property on five acres. It’s going to be worth $800,000. I only need $250,000 to finish it.”

But none of the banks would lend to him, for several reasons:

  • The project had already begun. Banks never like funding a project that’s already started.
  • His income didn’t meet their requirements. The property itself didn’t matter to the bank because James’s income was lower than they were willing to lend to.

So, James came to us instead. The project was only stalled because of money. He needed the $250k to finish the project in 5 to 6 months so he could get his family out of the trailer they were staying in on the property in the meantime.

Here’s what we did: we gave him the money out in escrows, or draws. He got $70k from us up front, then another $70k later, then another $80k, and so on.

We didn’t need to pull his credit score, scrutinize his income, and make sure he checks every box. We just needed the property to CO.

Finish a Bootstrapped Project

When any sort of flip is sitting stale for too long, sometimes the owner needs extra outside money to get things moving along so the property will start generating income.

Our client CW was a realtor who was finishing a project by turning a traditional rental into a short-term one. He had been bootstrapping the project (aka, funding it from his own resources).

His funds were slowing down with the change in the market, and Airbnb season was quickly approaching for the area. He needed a last $50k to finish the project.

So, he came to us, and here’s how it worked for him:

  • He kept his mortgage on the property.
  • We gave him $50,000 in a second-lien position on the same property.

He was able to get the house finished up and fully booked out for 6 months – generating plenty of income to pay off his loan with us.

Finish a Project That Goes Over Budget

With certain types of loans, banks can halt part of the funding if the project goes over budget. Here’s how it played out for our client John.

He had a construction loan with a bank. It was a great deal: they gave him all the money to build the property, then in the end it converts into a permanent loan at 3%.

However, he went over budget… so the bank stalled it. He needed $60k to get the project back on track and keep that 3% loan.

Here’s how John did it:

  • We gave him $60k.
  • He finished the project.
  • He could lock in the 3% bank loan for a 5-year term.
  • He took out a HELOC and paid off his loan with us.

Finish a Flip!

This fourth “finish a project” loan is our most common: working with fix-and-flippers.

Our client, PS, had a flip. Or rather, he had too many flips going at once. This one had been sitting for over 6 months, and he just needed $25,000 to finish up the rehab.

For those 6 months, this property was eating up funds. He was making mortgage payments, hard money interest payments, taxes, utilities, and everything with zero inflowing cash.

He had another hard money loan on the property, so we were able to come up behind him and get him the $25k.

Within 3 weeks, the project was complete and put on the market. Four weeks later, it sold, and he paid both loans off.

Why We Do These Loans

Big lenders won’t do deals like this for you. But as long as we’re in a safe lien position, we love being able to help you with these project finishes.

A couple of tens of thousands of dollars right when you need it can save you years of financial recovery.

Do you need a “finish a project” loan? Feel free to reach out at Info@HardMoneyMike.com. We’d love to see if we can help.

Happy Investing.

The $1.8 Million Dollar Mistake: DSCR Loan Interest Rates

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DSCR loan interest rates vary like crazy. Here’s exactly how to avoid a costly mistake.

DSCR loans are unlike any other loan out there.

Traditional loans are standard – every lender will have the same interest rates, terms, points, and closing costs. There is one system, one set of brackets that decides loan prices, and one approval process.

Not so with DSCR loan interest rates and other terms. This style of loan is the Wild West of underwriting.

With so much variance between DSCR loans, it’s more important than usual to shop between lenders. Let’s go over the $1.8 million mistake some investors make with DSCR loan interest rates.

Current DSCR Loan Interest Rates

We’d like to share a couple of examples we see in the DSCR loan world.

As a mortgage broker, we have a program that allows us to look at different rates from different companies. Every day, 10 to 15 different lenders put their rates on this search engine.

We search the same information daily to get a picture of the rates on these loans. We put the same:

  • Credit score
  • Debt service coverage ratio
  • Loan-to-value

Yet every lender offers a different rate. On the same 30-year DSCR loan, interest rates have looked like this:

  • The best: 7.04%
  • The worst: 9.46%
  • The average: 7.9% – 8.25%

These differences are not based on credit score, experience, property size or type, or debt ratio. These are the options for the same person calling around for the same deal. They could find anywhere between 7.04% and 9.46% – all depending on the lender.

The DSCR loan market is extremely segmented. And that is why it’s vital to shop around.

We want to break down the difference in DSCR loan interest rates for you. How much money do you lose on the worst DSCR interest rate vs the best?

How Much Different Interest Rates Cost You

Let’s say we have a $300,000 deal we want a DSCR loan for. We’ll look at 3 common interest rates: the high end (9.46%), the low end (7.04%), and the average (7.99%).

In this example, we have the same credit score, same rent income, same property expenses, and the same loan amount. These interest rate differences are purely about the lenders we’re using.

Low-End DSCR Interest Rates

With the lowest available rate, 7.04%, on a $300k, 30-year loan, payments are $2,003.

At the exact same time, with the exact same parameters, a 7.99% interest rate (average range) has payments of $2,199.

So, this is a difference of $195. Doesn’t seem like a big deal? If your rent is $2,100, a lower rate could mean the difference between positive cash flow and negative – or qualifying for the DSCR loan or not.

High-End DSCR Interest Rates

What’s this comparison at the other extreme?

Lenders with higher DSCR loan interest rates are usually the ones who take advantage of the segmented nature of this market. They raise their rates high, then raise their marketing budget too. They push their product hard to be the first option borrowers see; when they don’t shop around, they’ll settle for the higher rate.

And with this higher rate, a 9.46%, your monthly payment would be $2,513. That’s $509 more per month than the lender with the 7.04% rate!

All for the same property, same LTV, same credit score, but different lender.

Impact on Real Estate Investors

The monthly cash flow difference from DSCR loan interest rates will hurt everyone’s pockets. However, it’s especially rough for investors. What happens if you have three properties? Five? Ten?

If you got stuck with a 7.99% rate for all of your investments (rather than 7.04%), that’s $70k extra in interest over the life of the loan. How does that multiply with more investment properties?

  • 3 properties → $210k extra in interest
  • 5 properties → $350k extra in interest
  • 10 properties → $700k extra in interest

Let’s make the same comparison with the higher-end interest rate of 9.46% compared to the low-end 7.04%. Over the life of the loans you’d be paying:

  • 3 properties → $550k extra in interest
  • 5 properties → $917k extra in interest
  • 10 properties → $1.8M extra in interest

That money is all additional interest that could have been avoided. It’s going into the bankers’ pockets because you didn’t shop around for a better rate that’s easily available.

But what exactly do we mean when we say shop around?

How to Shop Around for DSCR Loan Interest Rates

The spreads on DSCR loans are large. But shopping around for any large purchase is no fun.

When you’re talking with any sort of salesperson, it’s nerve-wracking to not know whether they have your best interest in mind. What if you don’t know what questions to ask to get the right information? What if they try to take advantage of you?

We want to give you a couple of questions to ask to get the information you need to make an informed decision on your DSCR loans.

Questions to Ask DSCR Lenders

Firstly, a piece of advice: if a company won’t quote you a general range in a simple phone call, then keep calling. Find the ones that will.

Secondly, prepare all of your information ahead of time, and be sure to give every lender the same information. You’ll want to have the following information ready before you contact anyone:

  • LTV
  • Credit score
  • Is it a purchase or refinance?
  • Zip code of the property
  • Type of property (single-family, duplex, etc)
  • Rent (or estimated rent)

Next, you’ll want to have a set of questions to ask each lender. Even if you don’t have the property yet, coming with a specific example gives you an idea of who the good lenders are.

What to ask DSCR loan lenders:

  • What interest rate could I get?
  • Is there a prepay penalty? How long is it and how much? (The pricing of a 5-year prepay will always be better than a shorter-term prepay. But if you know you’ll want to sell the property within three years, you’ll need to keep a shorter prepay in mind).
  • What are your closing costs?
  • What’s your appraisal process for underwriting?
  • Is this a 30-year product? 40-year? Interest-only?

How to Analyze the Price of Different Lenders

Now, once you have all the information and numbers from your different lenders, you have to make sure you’re comparing apples to apples. One lender may have a lower interest rate but an extra 1-2 points.

What’s important is the final number you’ll have to pay. You can download our free analyzer here for an easy way to figure that out.

We want to get you the lowest rate to keep your investment business turning. Rates have been fluctuating like crazy, though. 

If you want a regular report on conventional and DSCR loan interest rates, LTVs, credit requirements, and more, ask us about it at Info@HardMoneyMike.com.

Happy Investing.