As a hard money loan officer, I like to think of myself as a soldier on the frontline. I am in the trenches looking at fix and flip loan scenarios, speaking with Small Balance Real Estate (SBRE) entrepreneurs, buyers and sellers agents, and attending lending conferences. Based on the trends that I am seeing, below is what I believe you can expect this summer in the California fix and flip real estate market:
While it may seem, to the inexperienced, that hard money lenders operate in a "no man's land," the reality is, the top Hard Money Lenders have certain key characteristics in common. If you do decide to retain the services of a hard money lender, here are some of their best practices that you should be on the lookout for:
When you first begin to plan a fix and flip investment strategy, it is likely that you will be looking for a lender to help with financing. While more traditional banking institutions may be an option, it is often the case that a better fit for fix and flips is a hard money lender. Because hard money lenders fund loans faster and base their lending decisions on the merits of the property more than your own credit-worthiness, they have more flexibility than do traditional lenders.
Fix and flip financing, also called hard money loans, sometimes conjures up images of boogeymen in pin-striped suits making obscure threats about what will happen if they don't get their money back on time. Real hard money loans, though, are simply investments given to a real estate buyer by a business person who expects to make a profit off of that funding. There's no broken knee caps, pinky rings, or other Hollywood elements involved. A hard money lender is just a private lender who often steps in when the bank won't to offer the financial support a property flipper needs.
Many advertisements from lenders make it sound simple to get into the fix and flip business. All you have to do is (a) find a fixer-upper, (b) buy it cheap, (c) fix it up quick, and (d) sell it fast for a great profit, right? Well, experienced real estate investors know there is a lot of ground between (a) and (d). There is an art, as well as a lot of work that goes into a successful fix and flip. Understanding what makes an ideal fix and flip house and then finding it isn't always easy. A borrower needs to do a good deal of research and get the right financing for the best deal.
Anyone involved in REI knows that there must be a solid team for the process to work. Part of that team is the lender. There is the choice of traditional mortgage, however, that can take 30 to 60 days on average and with the banking regulations may not be a suitable fit. The regular market mortgage may not be your best option.
Investing in real estate can be risky. A savvy investor needs to know how to choose a lender who will be an asset to them. Not all are created equal. Here are five qualities to look for in a private lender.
Hard money lenders ask different questions from traditional lenders. You can't approach one simply expecting that a high credit score will be enough to get a loan. Instead, they look at you, your proposed purchase, and your equity to answer one basic question: Are you motivated to repay the loan? To this end, here are five of the most common questions that you can expect to be asked:
A hard money loan is a type of financing where the funds are offered by private investors or companies and are secured by real estate. They may come with some of the same qualification criteria as a conventional loan, including credit score and income analysis, but will more often be based on the value of the real estate that will be used as collateral. Typically, hard money loans will go up to about 70% of the purchase price. Some people are hesitant to explore hard money loans because they tend to have higher interest rates, but you should not base your decision on interest rates alone. In fact, hard money loans can be a worthwhile option for certain buyers. Here are 3 advantages of hard money borrowing: what’s in it for you?
Private lenders often move faster than traditional banks. They require less peripheral documentation than traditional banks because they are looking primarily at the liquidation value of the property in question. Anyone who has had to submit childcare expenses or make multiple appointments to deliver documents to traditional lending institutions in triplicate will appreciate being able to bypass the nonsense and get to work on their project faster. These loans are also likely to come with shorter terms. Instead of taking on payments for 15, 20, or even 30 years, hard money loan terms can range from 6 months to 5 or 6 years.
In today’s investing arena the performance of most fixed income portions of investment portfolios is, at best, anemic. While the low interest rate environment is a boon to those seeking capital, for investors, the returns from the fixed income portion of their investments is unable to keep up with inflation.
Trust Deeds can be a viable alternative, offering substantially higher returns available in the real estate market, with considerably less risk and without the hassles of acquiring, maintaining and managing real estate holdings.
