Tag Archive for: real estate investor

How to Raise Your Credit Score with Hard Money

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If you’re struggling with knowing how to raise your credit score, it might be time to check out a hard money usage loan.

Real estate investing is all about creative wealth using available leverage (other people’s money in the form of bank loans, hard money, etc.) to make a profit. It’s an accessible and lucrative field for first-time investors. 

However, a bad credit score can change the game.

Especially if you’re looking for larger, traditional loans, a bad credit score can immediately disqualify you from consideration.

But there is good news! Hard money (sometimes called “private money”) can save the day. 

The Cost of a Bad Score

A bad credit score (anything below 670 is often considered “poor”) can lower the quality of deals you find. If they do approve you for a loan, a bank will likely ask for an additional 10-20% down. 

You might be stuck with higher rates on a DSCR loan.

At worst, you won’t be approved for a loan at all.

This is both frustrating and very expensive.

How do Credit Scores Work?

Your FICO score is essentially based off of 5 categories:

You’ll notice that the vast majority (over 2/3rds) of the score comes down to just 2 components:

  1. Payment History
  2. Amounts Owed (Usage)

If your score is low because of payment history, then there isn’t much we can do to fix that with a hard money loan. That’s a problem that takes time to resolve.

However, if your score is low because of the usage, hard money can provide a very quick fix that can raise your score in as little as 14 days.

What is Credit Usage?

Credit usage (that Amounts Owed section) measures the ratio of total money you could use with how much you do use. 

Essentially, if you have a total available balance of $1,000 and you’re constantly maxing out that credit card, then you have 100% usage.

Credit card companies typically like to see usage around 30%. If you’re new to the investment game and you don’t have constant cash flow from current properties, it can be really tricky to have optimal credit usage.

How to Raise Your Credit Score Using Hard Money

You can use a hard money usage loan to pay off your credit card. 

This lowers your usage percentage almost instantly which in turn boosts your credit score. Because hard money loans move quickly, you could see your credit score go up in only a few weeks—we’re only waiting for the next statement to be processed!

Once that credit score is back above 700, you shouldn’t have a problem getting your next necessary loan and getting a good deal.

You should also consider opening a 0% business credit card.

The Cash Flow Company encourages moving expenses to business credit cards. This protects those higher real estate investment expenses from reporting on your personal credit score. 

Reach Out if You Need a Usage Loan!

At Hard Money Mike, we offer secure usage loans for investors looking to fix their credit scores.

Also, make sure to check out our free tools. Our loan calculators in particular can help you find the best loan options for your projects. It’s important to shop around as you invest and create wealth.

If you’re looking to raise your credit score fast, reach out to us at Mike@HardMoneyMike.com, and we’d be happy to discuss a deal.

How to Use Escrow for Your Real Estate Deals

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If you’re new to the real estate game, learning how to use escrow is a critical step towards success.

Everyone in the fix and flip game is likely going to encounter escrows.

A popular strategy is to use private (or hard money) loans. These can be helpful because they can fund up to 100% of your rehab and are super flexible.

The tricky thing (and where escrows come up) is that a lot of lenders require that you start the project with your own money, reimbursing you later through escrow.

This can become a problem for beginning real estate investors if they’re not prepared to pay that much on the front end. 

Where do you get the money? How and when do you actually access the escrow funds?

How Does Escrow Work?

Think of escrow as a reimbursement program. Lenders lock a certain amount in the escrow fund and you submit draw requests throughout your project.

You’ll likely need an additional $50,000 (from your own pocket) to get the project going to submit the first draw (essentially, reimbursement) request. In order to keep things moving, you should also try to have pocket cash for the second draw as well.

It looks a bit like this:

Week 1:

  • Put your own money in to start project
  • At the end of the week, submit your 1st escrow draw to your lender

The lender might take some time to go through their verification process, so you should prepare for a week two along these lines:

Week 2:

  • Lender begins reviewing 1st draw request
  • You keep moving forward with your project, paying with your own money bucket
  • At the end of the week, you submit your 2nd draw request
  • Lender reimburses 1st draw and begins reviewing 2nd

Hopefully after the first two draws, you won’t need any more out-of-pocket cash. 

Also, remember that those initial draws are covered, you just need the money up front, and then they reimburse you out of escrow. 

How to Get Initial Funds to Access Escrow

You need a full money bucket – a supply of personal funds you can use for those out-of-pocket expenses.

How can you make sure you’re money-prepared before you get into this? 

1. Business Credit Cards

If you can, get business credit cards. Business cards are a great way to protect your personal credit score. Also, if you’re smart about choosing a 0% card, you could go through the whole process without paying any additional interest.

If you have questions about setting up your business credit cards, check out The Cash Flow Company, our sister company that specializes in money-preparedness.

2. Lines of Credit

We recommend business lines of credit or, at the very lest, HELOCs on your home. The most important thing is to keep your projects going, and having a variety of lines of credit is going to help.

To learn more about bank lines or HELOCs, check out this article from The Cash Flow Company.

3. Other People’s Money (OPM)

You can look to family, friends, neighbors, acquaintances, anybody out there who’s looking to put some money to work. 

Even smaller amounts like $25,000 will make a significant difference, and you can offer a better rate than larger banks.

OPM is a crucial piece of filling your money bucket for those initial draws, and it’s also a relatively safe investment for people around you.

4. Gap Funding

Gap funding refers to any loan you get to fill a gap in your project. 

Lenders still look for security in the loan, but if you’re able to show security, gap funding is another possibility for paying for those first escrow draws. 

Hard money loans can often be used as gap funding, and you’re welcome to reach out to use if you want to discuss a deal with us at Hard Money Mike.

You’re Ready to Use Escrow Funding!

Having a full money bucket at the front end makes a huge difference in your success as an investor. Markets move fast, and stalled projects can end up costing more than they’re worth. 

These strategies can fill your money bucket and help you access escrow quickly and successfully.

If you have any questions, feel free to reach out to us at Info@HardMoneyMike.com. You can also contact our sister company at Info@TheCashFlowCompany.com to discuss business credit cards or other aspects of being money-ready.

Also, check out the free tools, calculators, and information on our website. Our only goal is to help you be successful on your investment journey.

Happy investing!

Private Money Loans: 5 Tips to Find the Safest Loan

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What should you look for when considering private money loans?

Real estate investing is one of the most lucrative markets out there. It’s still creating millionaires and opening the door for families to build generational wealth. But how can you get your foot in the door?

Especially if you’re a newer investor, we’re here to help you figure out how to do this by finding the right lender for you.

Why Private Money Loans? 

Private money loans—also often called hard money loans—are particularly helpful in real estate investing. These particular loans are more flexible which make them perfect for unique projects or projects in rural areas that larger banks may see as less valuable.

If you’re in real estate, you understand that leverage is king. Hard money is an important part of that leverage. However, even as you’re looking for private loans, make sure you shop around so that you can negotiate the best deal possible.

But how can you go about finding a good private money loan? 

1. Shop Around for Loans

No matter where you are in your real estate career, you should always shop around. Even if you’ve had a good experience with a lender in the past, still look around to see if you can find better deals. 

Talk to different lenders. Especially with hard money, each lender will typically have a specialty. This means that each project you do might fit best with a different lender.

This can feel overwhelming, so we’ve created a free tool called the loan cost optimizer. It’s easy to use and can help you find a better deal for your project.

2. Ask For Referrals

If you ask Google to find a good lender, two things are going to happen: First, you’re overwhelmed by the sheer number of options. Second, the ones you’re most likely to see will be paid promotions or paid advertisements.

One of the best ways to avoid this is by asking for referrals. If you know other people in your area who are in the real estate game, ask about their experiences with their lenders. 

Did they charge what they said they were going to charge? How accurate was the lender’s original quote? Did they close on time? Was the contract solid?

Finding a good lender is about more than the on-paper costs. You want a lender who’s reliable and trustworthy, just like they want reliable clients. 

3. Check the Reviews

If you can’t get a referral from someone, the next best thing (and something you should do regardless) is to check the reviews.

Platforms like Google have made it super easy for people to leave reviews for companies. Check out what people are saying. 

Although reviews aren’t always entirely accurate, if a private money lender has a lot of negative reviews about trying to change the terms of a loan, that could be an issue. 

4. Get The Private Money Loan Details in Writing

You don’t ever want to be stuck in a situation where you thought you had a specific agreement, but it doesn’t come through because it was just a verbal comment.

Make sure you get a clear terms sheet that outlines everything the lender said. If you have other important conversations, ask to get an outline of that conversation in writing. Even an email works!

5. Review All Paperwork Carefully

If possible, find a lender who will provide the settlement statement a day or two before closing so you don’t have any surprises. This gives you time to review the paperwork carefully before finalizing the deal. 

Always make sure you know the default rates and other potential charges that might show up. Even if you don’t expect delays in your projects (no one does), read all that fine print carefully so you know the facts.

If You Want Additional Help… Ask Us!

Here at Hard Money Mike we specialize in private money loans. These loans are flexible and perfect for investors working in smaller communities, but it can take some time to find the right loan for you.

If you want a quote, have questions, or want to learn more about private money loans, reach out to us at Info@HardMoneyMike.com. 

Hard Money Loan Requirements Explained

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Understanding hard money loan requirements is the first step in finding the right lender for you!

Before you get started on your fix and flip, you need to know a few things:

What does your lender look for? 

What do you need to know about each project before applying for a hard money loan? 

The more you know, the better deal you’ll be able to find.

What Do Hard Money Lenders Look For?

Lenders look at a lot of things when determining deals. It’s important to have details for each piece of your project so you can make sure there aren’t any delays in your work.

ARV

ARV (After Repair Value) is a critical component when calculating a hard money loan. 

Hard money lenders look at the projected value of your property. By looking at comparable properties (comps), lenders estimate the projected value based on the work you plan to complete. 

Scope of Work and Budget

Similarly, lenders look at the scope of the work you plan to put into your project.

What renovations are you planning? What is your budget? Having clear answers to these questions helps the lender determine what exactly you’re going to need to put into the project in order to have a higher ARV.

Your lender will also look at the purpose of the project. What is your ultimate goal? This lets lenders estimate the profits and the LTVs when you’re figuring out a deal.

Exit Strategy

You need to have an exit strategy. Are you selling, refinancing, something else? 

Having a clear exit strategy demonstrates your ability to manage the project well and follow through with generating returns.

Specific Loan Amounts

How much are you looking to borrow? Do you want the full amount or just partial? 

If you can put some of your own money into the project, you’ll need a clear idea of how much of that goes towards the purchase price vs. renovation costs. 

Since timing is so important in keeping your project moving, you want to know upfront if you’re putting your own money in escrow for repairs or relying on hard money loans for those costs.

Timeline

How long is your project going to take? The longer the project takes, the more important it is to buy lower to ensure you’re able to have higher profit margins so you can pay back your loan. 

Interest, taxes, insurance, and even HOA fees add up every month you hold your loan and work on your project. 

The faster you can turn your project into something that is making you money, the less risky you are as a borrower.

Hard Money Loans: Profit Expectations

Ultimately, estimating profit revolves around three things:

  • ARV (After Repair Value)
  • Purchase Price
  • Renovation Costs

Lenders typically max out at 70% to 75% of the ARV, but LTVs (Loan to Value) can also affect those numbers.

If you estimate your ARV early on, you can calculate what money you have to put into the project before sending it to lenders. This lets you propose a more detailed plan which can help you find a better deal.

You can use this free tool to help you calculate those amounts quickly and easily. 

Does Your Project Meet the Requirements?

We want to make sure your project is profitable and able to meet hard money loan requirements. 

If you have a deal you want us to look at, we’re more than happy to help! You can always reach out to us at Info@HardMoneyMike.com.

You can also check out our YouTube channel for more information about how to successfully navigate your fix and flips.

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.

Credit Score Basics: How Lenders Use FICO Scores

How Lenders Use Your FICO Score

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How Lenders Use Your FICO Score

Do you know how lenders use your FICO score? Because it’s vital to whether or not you get approved for a loan.

If you understand credit score basics, then you’ll have a much better chance of hearing a “yes” rather than a “no” from a lender. You’ll also gain a much deeper understanding of how your score impacts your monthly payments.

You see, when you have a decent credit score (700+), then you can expect to see more loan approvals. Especially from traditional lenders, like banks.

Plus, a good credit score will lead to good rates. And that means cheaper bills.

For real estate investors, a good credit score can make all the difference between positive and negative cash flow. And over time, that kind of business model can run you…well, out of business.

If you’d like a quick overview of how credit scores work and how lenders use them, then check out this explanatory video from FICO.

In this video, you’ll get a simple and fast explanation of how credit scores work. Again, this is vital if you want to succeed with your real estate deals. And your overall financial health. Your wallet will thank you for taking such good care of your credit score.

If you want more credit score tips, check out our Youtube channel! As we’ve stated throughout this article, we highly encourage you to understand the importance of your score so when it’s time to get a loan for your next value-add property (fix and flip or rental), you’ll have lots of options. And access to great rates.

Need some extra input on your credit score and how you can raise it? Our team is always here to offer advice and guidance.

As always, happy investing!

Thursday Tips: How To Analyze Investment Properties

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Thursday Tips: How To Analyze Investment Properties

Ready to learn how to analyze investment properties?

In this great Bigger Pockets article, you’ll learn the nuts and bolts of evaluating real estate deals.

You’ll also discover how to get the information you need to complete a comprehensive evaluation of a neighborhood. That way you can determine which neighborhoods and properties will give you the best return.

And getting the best return is what this business is all about. Because generating positive cash flow is the answer to your financial independence.

But the only way to produce strong income is to put your money in the right properties. And the right properties depend on your analysis.

If you fail to evaluate your deals correctly, then the numbers won’t add up. And that means you might lose money.

A lot of money.

Yikes.

Yes, we’ve said it once and we’ll say it again: Numbers don’t lie.

How To Analyze Investment Properties

Before diving into real estate investing, make sure you understand how to compare markets and properties. Whether you’re trying to decide between investing in Boise or Sacramento—or you’re just comparing two similar homes—this guide will walk you through all the numbers you need to know. From calculating cash-on-cash return to running a comparative market analysis, the experts at BiggerPockets demonstrate the steps you need to follow and the statistics you must know with The Beginner’s Guide to Real Estate Market Analysis.

Ready to learn more about evaluating your real estate investments? Great! Check out the entire Bigger Pockets article here:

Is That Neighborhood Up-and-Coming? Here’s How to Tell

Or if you’re ready to chat about your fix and flips, rentals, and other value-add properties, give our team a head’s up.

Happy investing!