Tag Archive for: rentals

Private Money vs. Hard Money: What’s the Difference for Real Estate Investors?

/in

Today we are going to discuss hard money vs private money. As a real estate investor, you’ll hear the terms private money and hard money tossed around a lot. Both can help you fund deals, but they come with key differences. Knowing these can save you time, money, and stress.

Let’s break it down.

Hard money loans come from professional lenders. These lenders specialize in quick, short-term loans for real estate deals like flips or rentals. Hard money often means higher interest rates and fees, but you get speed and reliability in return. For example, if you find a fix-and-flip deal that needs to close in 10 days, hard money might be your go-to.

Private money, on the other hand, usually comes from individuals—friends, family, or other investors. These loans often have flexible terms since the lender isn’t a professional. Imagine asking a retired family member to fund your next rental in exchange for interest payments. With private money, relationships matter more than a credit score.

So, which is better, hard money vs private money? It depends on the deal. If you need speed and structure, hard money may be the answer. If flexibility and trust are key, private money might work best.

Contact Us Today! 

Which is best for you, hard money vs private money? Contact us today to find out more!

Free Tools For You! 

We also have free tools available! Download the Loan Optimizer to compare financing options side by side!  

Learn more!

Visit our YouTube channel to learn more about real estate investing and how you can get on the fast track to success! 

Why You Shouldn’t Use a DSCR Loan for a Fix and Flip

/in

A DSCR loan is great for rentals, but why don’t they work for flips?

DSCR loans definitely have their place in the real estate investor’s arsenal. But if you’re trying to do a fix and flip, this loan might not be the right fit for you.

How Does a DSCR Loan Work?

DSCR stands for Debt-Service Coverage Ratio and is a loan particularly suited for rental properties. Like any other traditional loan, a DSCR is able to fund up to 80% of the purchase price or appraisal, whichever is lower.

For example, if you have a $200,000 property, the DSCR will cover up to $160,000 (80% of the total purchase price). This leaves $40,000 left for you to cover on your own.

As mentioned above, this loan is very well-suited for properties that generate steady cash flow (like a rental), but they can be more difficult to work with in the fix and flip game.

Why You Shouldn’t Use DSCR for Flips

You Need to be Rent Ready to Get a DSCR

In order to qualify for a DSCR appraisal, a property must be rent ready. This creates a lot of hurdles in the fix and flip world since many flippers are doing more than basic cosmetic repairs. 

DSCRs Have Prepayment Penalties

Most DSCR loans come with prepay penalties. These penalties typically come in 3- or 5-year plans. Again, in a rental market where you’ll be holding onto the property for longer amounts of time, you typically don’t need to worry about the prepay. 

However, the fix and flip market moves quickly. DSCRs penalize investors who pay off these loans quickly, something fix and flip investors often work towards.

You’ll Pay More For Rehab

In addition to the remainder of the purchase price, DSCRs don’t cover renovation costs. This means that even more money will need to come out of your pocket. 

Make Sure Your Loan Fits the Project

DSCRs are a great product for rental properties. However, if you’re looking at doing a fix and flip, take a look at other types of loans.

The most flexible loans are going to be hard money (also called private money) loans. 

We have a ton of free tools on our website that can help you find the right loan to fit your project. We’re also happy to chat with you about any particular deals or questions you have. 

Just reach out to us at Info@HardMoneyMike.com.