When purchasing real estate, financing is often required. Few people have the capital to buy a piece of property outright, so most must turn to the bank. Unfortunately, for some borrowers, traditional financing is not an option. In such cases, borrowers must look for more unique forms of financing…
Flipping houses in southern California is hot right now, especially in Los Angeles. Almost 25 percent of flipped houses occur in Los Angeles County. According to LendingHome, “ From 2014 to 2017, house flippers—who buy properties with the express purpose of fixing them up and re-selling them—sold 39,042 homes.
If you have the right knowledge and skill set, flipping houses can be highly lucrative. This process typically involves purchasing a property at a price below its actual or potential value. After making changes to the property to increase its value and/or appeal, the house flipper is able to sell the property at a handsome profit.
What are consumer owner occupied loans? These loans are loans where the borrower intends to live in the property as a residence or for a consumer purpose. Consumer purpose includes paying a tax lien, helping a family member or bill consolidation. There are tight lending regulations when it comes to consumer owner occupied loans in […]
If you know the best time to sell your house, you can sell your house quicker and for more money. Knowing when will help you find that home-selling sweet spot. And waiting to put your home up for sale can help ease the stress of selling it. The best time to put a home on […]
Speed and flexibility are the main reasons why real estate investors use hard money loans in California, but there are many other reasons, too. Let’s take a look at some of the other reasons. Straightforward Process Applying for California hard money loans is a simple process. Often, a brief conversation with California hard money lenders […]
For those who have never applied for a hard money loan before, it can seem difficult to know where to look. Many borrowers are thinking about time and want to get a loan as soon as possible to complete their project and get a return on their investment. However, it is important to find a reputable hard money lender and not just jump in with any lender. Borrowers need to take into consideration that hard money lending is a niche industry that works with borrowers in the real estate industry, as well as property owners, who need this type of financing.
In California, borrowers are in luck, as there are many hard money lenders available in this state. Also, there are a few ways to find the best and most reputable hard money lenders in the state of California. Read on to learn about the best ways to find a hard money lender near you and secure the funds needed for your property or other real estate investment.
Lists and Directories
One place to look for hard money lenders is through a directory or list. This can be done online. The lists are available for lenders to browse and many are organized by state and/or region for added convenience. Many of these lists are free for the hard money lenders while others charge a fee for the lender to add their name. What’s important to note, however, is that the lists and directories do not take into account a lender’s track record or experience. This is something the borrower must investigate themselves. When it comes to the state of California, these lists can be quite extensive. For this reason, it is best to narrow down the list by searching for hard money lenders closest to the borrower’s location. From here, the borrower can do research on the lending company’s overall experience and customer satisfaction. Trust is an important element when choosing a hard money lender, so be sure that previous customers have had a good experience with a lender before reaching out to them for a hard money loan.
Lists and Directories Should be Free
A borrower should never have to pay for a list of private hard money lenders. When someone is trying to sell a list of lenders, this is a red flag. Sometimes, the borrower may fall for a sales pitch that emphasizes that it is far too difficult for a new borrower to find a hard money lender, but this is not true. Another red flag is a sales pitch that says the borrower must buy the list before being able to speak to one of these lenders. This is also false. Hard money lenders are looking for business and are more than happy to speak with potential customers. In most cases, when the borrower has a loan scenario that seems promising, the lender will do what they can to work out a deal. If they can’t, they will try to direct the borrower to a lender than can. One place borrowers will find lists for sale is on eBay. The price ranges from ten to one hundred fifty dollars, but there is no guarantee if these lists are reputable or updated. In the end, it is better to work from free lists and directories to find the most trustworthy hard money lenders for a real estate project.
Local Real Estate Investor Meetings
Another way to find potential hard money lenders is to attend a local real estate investor meeting. This is the perfect place to put on your networking hat and find the right lender for your needs. Many hard lenders attend these meetings, meaning a borrower can meet one or more hard money lenders face-to-face and get all their questions answered. If there are no hard money lenders present at the meeting, simply ask the real estate agents for referrals. They will oftentimes be more than happy to assist in the search.
A simple Internet search on Google for hard money lenders should turn up a free list or directory of hard money lenders that a borrower can contact. Simply type in “hard money lenders in California”, “hard money lenders near me”, or “hard money lenders in (city)”. Google will give results of the most active hard money lenders available who can be contacted.
Call a Real Estate Professional
Many real estate professionals have worked with hard money lenders in the past or present. Call a few local real estate agents and create a list by asking for the most highly reputable lenders with experience who can be contacted. Besides real estate agents, a borrower can also contact escrow officers, traditional mortgage brokers, and title company representatives to compile a thorough list of hard money lenders to contact.
As a commercial real estate investor, regardless of if you are new to the game, or a seasoned veteran, you have many options when it comes to securing a commercial real estate loan. While traditional lenders have been considered the “go-to” for commercial loans, as the guidelines tighten, the qualification processes have made it more and more difficult to acquire the needed loans.
One area, which has been pretty successful, and that is growing in popularity, provides an alternative to the traditional loans available to commercial investors – the commercial hard money loan.
However, if you aren’t sure about what these are, or how they work, it is best to gather a bit of information first. This will help ensure you find the lending option that is right for your particular needs.
Commercial Hard Money Loans Explained
For any type of loan, it is the lender who will be taking on all the risk. The way that hard money loans are different than conventional bank loans is mainly how they are able to mitigate the risk. However, it is also in regard to the increased risk that hard money lenders are taking on by offering more unconventional deals. After all, if you were going to lend out $2 million, then you would want to make sure that there were additional ways to help protect yourself from going into default, too.
Understanding a Traditional Loan
When you seek traditional lending, from a private banking institution, it is going to focus on the ability the borrower has to make payments over time. This is why they rely on issues such as your payroll earnings, credit and more – all this helps to determine if the borrower is going to be able to cover the payments over a certain period of time.
More About the Hard Money Commercial Loan
With this type of lending, the loan is based on assets. What this means is that the amount of the loan will be based on the property that is put up as collateral. This type of loan is going to focus on the collateral’s value, instead of the cash flow or credit they have. Since the collateral is put up, it will protect the lender if default occurs, while encouraging the borrower to make payments in a timely manner. While the qualification process for a hard money loan is somewhat different, some prefer this method, over traditional bank loans.
How a Private Money Commercial Loan Works
Now you have a general idea of how the hard money loans work differently than a traditional commercial loan. Here you can see one in action.
The first step in acquiring a hard money loan is to find the right lender. Not all hard money lenders are created equal and not all of them offer a commercial loan program. Also, not all the lenders are going to be able to offer the amount that you need. You need to find a lender you are comfortable with.
The next step is for you to identify the collateral that you want to use for the loan. Keep in mind, a hard money loan is based on the value of your collateral. The majority of collateral will include some type of retail property, apartment buildings, office buildings, industrial property or some type of non-owner occupied one to four family property that is held under a corporate name or by an LLC. While the exact documentation the hard money lender is going to require will vary, it will have to be enough to convince the lender of the perceived value of the collateral that is being used.
In addition to the documentation that is needed, a lender is also likely going to require an appraisal or a BPO to determine the collateral’s value. Then the lender will base the loan on the LTV (loan-to-value) ratio. If everything is able to check out, then the hard money lender will provide financing for the loan.
Important Things to Consider when Taking Out a Hard Money Loan
Now that you are aware of how a hard money loan works, it is important to consider a few things before taking this out. These considerations include:
- Having good credit isn’t the most important factor
- Getting a hard money loan is a faster process
- The terms and interest of this type of loan are different
Are Hard Money Loans Really the Right Option?
A hard money loan can help those who want to invest in commercial real estate in a landscape where banks won’t provide the desired loan. However, this doesn’t mean that a hard money loan is the right option for every situation.
It is best to evaluate your needs carefully to determine if this type of loan is right for you. Taking the time to consider all the options and then figuring out if the hard money loan is right for you is best. In the long run, this will ensure you get the loan you want and need without having to pay too much for the financing, which is always a benefit.
There are many properties found all across the country that can be purchased for a reasonable price. These properties give you an excellent opportunity to purchase homes at cheap prices, remodel them, and then flip them for a good profit. If you are looking for a way to save up for retirement, you should definitely look into flipping homes as one of your primary retirement saving strategies. This type of strategy is especially beneficial if you are able to perform many of the remodels yourself, which will save money and increase your profit potential.
How to Finance a Fix and Flip
If you have the ability, you can always take advantage of a cash-out refinance. This allows you to cash out on the equity of your home or other assets and use the cash to fund your fix and flip. Ideally, you will want to take advantage of this option if you have already been in the fix and flip industry for a while. If you have not, then finding other ways to fix and flip a home is suggested.
A traditional bank loan is another option you have when it comes to financing a fix and flip. Just the same as getting a mortgage for your own home, getting a loan for a fix and flip is going to take some time. You will need to provide an array of paperwork and financial statements. For short-term investors, this is not an option you will want to pursue.
There are other ways to finance a fix or flip, with one of the most common being to get the cash from a friend or family member. And while this option is ideal as it provides you with instant access to cash when doing the remodel, it can also leave a sting on the relationship if you are unable to turn a profit and pay back the borrowed funds.
Lastly, two other options for financing a fix and flip are crowdfunding for real estate money and hard money funding. With hard money funding, your personal credit score and assets are not taken into consideration. Instead, the profit potential of the property being flipped is assessed; this finance option is ideal if you have poor credit.
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