California Hard Money Lender Meeting with Clients

3 Things To Look For In California Hard Money Lenders

What do you think of when you hear the words “hard money loan?” Do you envision shady characters conducting business in dark alleys and charging exorbitant interest rates? While a few bad apples have cast a shadow on some hard money lenders, if you do your due diligence, you shouldn’t have to worry about being taken advantage of. And believe it or not, there are reputable hard money lenders out there.

The Basics of a Hard Money Loan

A hard money loan is a short-term loan backed up by real estate. Generally, they are funded by private investors instead of banks. Terms are typically 12 months but can be extended to 5 years. Monthly payments consist of some principal and interest with a balloon payment at the end. The amount of hard money given is dependent on the value of the property. Most hard money lenders are concerned with the property’s value rather than the borrower’s credit. When a bank says “no,” a hard money lender says “yes.” Hard money loans come in handy when banks are not an option or the loan is needed for just a short time. They are ideal for land loans, flips and when a buyer has credit issues or when the borrower needs to act quickly. Hard money loans only take a day or two for approval compared to the typical 45-day wait with a bank.

3 Things to Investigate

When you’re looking at different California hard money lenders, there are three things to keep in mind.

First, take a look at the interest rates and points of the loan. The good news is that hard money lenders the El Dorado state of California tend have lower rates than in other regions in the nation. And that’s because there are so many of them in California.  California hard money lenders have to duke it out with each other in order to get your business.

One thing to note is that hard money lenders do take on more risk than banks. Hence, there will be higher interest and points compared to a bank. The interest rate should range between 10 to 15 % and points should range from 2 to 4%. These ranges depend on the loan to ratio value.

This is why the second thing you need to do is take a good look at the hard money loan to ratio value (LTV). “The loan amount is determined by the ratio of loan amount divided by the property’s value.” You can expect a hard money lender to lend up to 75% of the property’s value. California hard money loans will be based on the value of the property after improvements. But then, you can expect the interest rate to be higher.

Knowing what the hard money lender requires for the loan is the third factor that you need to look at. As mentioned previously, most hard money lenders are not that concerned about the borrower’s credit. If you have the capital to pay the interest on the loan, previously problems such as foreclosure may be overlooked. The hard money lender will also want to know your plan for the property, so be prepared to have one in place. The plan should outline how you intend to pay off the loan.

Lender Meeting with Clients

Why Real Estate Investors Use Hard Money Loans In California

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 and a standard application will get the job done. On the flip side, banks require an almost endless amount of paperwork for the borrower. And it can take weeks to get a response. During the interim, the property just might get snatched up by another investor. Plus, once you’re approved with a hard money lender, the loan can usually be funded within two weeks.

Makes the Offer Stronger

In comparison to attaining financing from a bank, an offer from California money lenders is stronger. It’s not uncommon to hear that the bank pulled financing during escrow. This can kill the deal. California hard money lenders are not known to reject funding for arbitrary reasons.

Negotiate a Lower Price

California hard money loans are considered a cash offer. This gives the buyer an upper edge to negotiate a lower purchase price. There’s a shorter escrow time period and a quicker close. A motivated seller always likes these factors. Cash can always be leveraged for a lower price.

Not-So-Perfect Credit Score Are OK

Typically, a bank will use the borrower’s income and credit as criteria for approving a loan. If there is anything that raises a red flag, most likely the loan will not be approved. Hard money lenders are so focused on the borrower’s credit rating and income. They primarily focus on the collateral and equity.

Reinvest Equity

When a real estate investment opportunity crops us, there’s usually little time to make a decision. If the investor needs to raise money, there may not be that many options. Cash-out refinance loans from a hard money lender are available to borrowers. A cash-out refinance loan can be done by California hard money lenders quickly. This way, the investor can take advantage of a good opportunity.

Flexibility

Traditional banks are very well-known for having arbitrary regulations and being rigid. These characteristics can prevent the real estate investor from obtaining a loan. Less is required from a hard money lender, and many California hard money lenders offer creative solutions to any problems that arise.

It’s a Partnership

When a real estate investor goes to a California hard money lender, it’s a partnership. Both the investor and the lender want a smooth deal. The last thing either wants is missed payments. A California hard money lender will analyze the project and address any concerns that maybe the investor did not think of. With California hard money lenders, you’ll get good advice.

No Limitations

Often, real estate investors purchase and have more than one property. Many banks will cap the amount of loans to a single borrower. Hard money lenders do not do this. They are more concerned with the equity, and view working with an investor on more than one property as positive. They will sometimes even cross-collateralize investment properties.

advantages and disadvantages of hard money loans in California

Advantages and Disadvantages of Hard Money Loans in California

Financing a new real estate project can go two ways; traditional lending or hard money loans. The latter is a tool that many real estate professionals in California utilize to finance a property. Experienced investors who have been taking advantage of these types of loans know all about the advantages and disadvantages of hard money loans. However, for those who are new to this alternative type of lending, the issues aren’t as clear. Read on to learn everything you need to know about hard money loans, including the most important advantages and disadvantages.

Hard Money Loans have a Quick Turn Around

Compared to a traditional loan, hard money loans are approved and financed much faster. The process for a hard money loan includes the lender looking at a few things, including the property in question, how much the borrower can put down, the borrower’s equity in the property, the exit strategy for the property, and how much cash the borrower has in reserve to make their loan payments. Hard money lenders want to loan money so as long as the borrower meets these requirements, the lender will quickly approve the loan. In fact, a real estate investor in California can expect to have a hard money loan approved and funded within three to five days as opposed to the 30 or more days it takes to approve and fund a traditional loan. In addition, borrowers who have first sought a traditional loan only to have it not approved after sitting in escrow often turn to hard money lenders to get the funds they need for their real estate investment.

Hard Money Loans Have Fewer Requirements Compared to Traditional Loans

Banks and credit unions in California have lengthy requirements for a loan and these requirements often change from year to year. In fact, many borrowers are unable to meet these demands, which include:
• No recent foreclosures
• No recent short sales
• No recent bankruptcies
• Bad credit
• Four current mortgages or more regardless of credit rating
• Self employed borrowers or those with a lack of steady employment for at least two years are unable to get a bank approved loan

On the other hand, hard money lenders have fewer requirements. As stated earlier, these include:
• Satisfactory equity in the property
• Or a substantial down payment (25% to 30%)
• Enough available cash on hand to make loan payments
• A clear and reasonable exit strategy
• Experience in real estate investment
• Credit score and employment history is a non-issue

Hard money loans are easier to get versus traditional loans. In addition, a borrower can opt for a short term hard money loan to purchase a property they intend to live in, and once they meet the requirements of traditional lenders, they can always refinance the loan with a bank or credit union for a longer loan at a lower interest rate.

Projects that Can’t be Financed Elsewhere Qualify for Hard Money Loans

There are certain real estate projects that traditional lenders have no interest in financing. These include flipping properties in California for a profit. Borrowers who intend to flip a property need a short-term loan, usually up to 12 months, to make the necessary repairs and renovations before quickly selling the property for a profit. For banks and credit unions, this type of loan does not fit into their business model. Instead, they prefer to offer lengthy loans of 15 years or more at a lower interest rate. Also, traditional lenders find these projects too risky. This is because the property in question often has issues that prevent them from qualifying for a conventional loan, such as problems with the property’s structure, plumbing, electrical work, and other factors that make the property’s value quite low upon purchase. Overall, banks are not in the business of risk. They prefer sound investments that fit into their strict lending requirements and offer little to no risk, even if the borrower defaults on the loan. If this were to happen, the bank then has the property for collateral and can resell it to another investor without losing any or very little on the loan they sold.

Disadvantages of Hard Money Loans

So far we’ve touched upon the advantages of hard money loans. These include the fact that they are easier to obtain and take much less time to secure. However, there are some disadvantages of hard money loans that borrowers in California also need to take into consideration before taking this lending route.

Higher Interest Rates

Due to the increased risk associated with hard money loans and the convenience they offer to the borrower, interest rates are always higher when compared to conventional loans. Typically, hard money loan interest rates fall between 9% to 15%. In addition to a higher interest rate, hard money lenders in California also charge a loan origination fee, referred to as points, which is a percentage of the entire loan amount. Borrowers can expect to pay from two to four points on a hard money loan, although some lenders may charge more depending on the specific factors of an individual loan.
For real estate investors in California where there are more hard money lenders than in many other areas of the United States, this competition brings rates and points down. For this reason, it’s important for borrowers to compare the rates and points of many hard money lenders in their area before making a commitment.

In addition, there are hard money lenders who will provide loans on second mortgages. In this case, they tend to charge an even higher interest rate than they would on a first mortgage. The additional interest rate for a second mortgage will be about 2% to 3% higher. The higher interest rate on a second mortgage is due to increased risk. If the borrower defaults on the first mortgage, the lender for that mortgage can foreclose on the property, making the second mortgage obsolete.

Short-Term Loans Only

Hard money lenders do not give out long-term loans. Typically, a hard money loan is for one to two years. In some cases, they can be for three to five years but this is the absolute limit for hard money loans. Lenders prefer giving shorter loans because the longer the loan, the higher the risk for the lender due to the uncertainty of future interest rates in the lending industry. For example, if interest rates drop, the borrower then has the option to refinance the loan for a lower interest rate, meaning the lender loses out on the profit they would accumulate through a higher interest rate. On the other hand, if interest rates climb, then the lender needs to wait for the term of the loan to end before they can jump in and charge a higher interest rate. All of these interest rate fluctuations represent a risk for the lender. Therefore, they prefer to give out the shortest loan possible to minimize risk. Conventional lenders deal with interest rate uncertainty by offering lower interest rates for shorter terms and higher interest rates for longer term loans. When a borrower takes out a 15-year loan they can expect to pay a lower interest rate, whereas a longer loan term of 30 years will see a higher interest rate charged.

Larger Down Payment

Traditional lenders require a smaller or no down payment to secure a property loan. However, hard money lenders require a down payment or substantial equity in the property to secure a loan. For this reason, hard money lenders are able to be more flexible with their requirements for issuing a loan because the equity in the property is seen as a hard asset for the security of loan. This is where the term “hard money loan” comes from. On the other hand, banks and credit unions focus more on a borrower’s credit score, stable employment history, and other requirements. In order to secure a hard money loan, however, the borrower needs to have a down payment.

If the borrower has neither a large down payment or substantial equity in the property, they cannot secure a hard money loan since the lender would be taking on the entire risk of the loan. To illustrate further, consider this example. A borrower puts down 5% on a loan and secures funding for the remaining 95%. This results in a 10% drop in the property value and a 5% loss. Therefore, if the borrower decides not to continue with the project due to a decline in property value in the foreseeable future and defaults on the loan, the hard money lender is left with a loan that can’t be paid back. On the other hand, if the borrower puts down 30% on the loan and there is a 10% decline in the property value, the borrower still has the motivation to continue with the project to protect the equity they invested in the property.

Compared to residential hard money loans, commercial hard money loans typically require an even larger down payment. This can be up to 40%. A larger down payment is required because it is more difficult to sell commercial property than residential property, thus putting more risk on the hard money lender. Overall, there are far more potential buyers for residential properties than there are for commercial properties and the hard money lender seeks to avoid as much risk as possible when giving out a hard money loan. Additionally, if a borrower defaults on a hard money commercial loan and the lender takes back the property to sell, they may have to significantly reduce the sale price of the property to recoup their investment through a quick sale. It is also more difficult to place a correct value on a commercial property as there are fewer data points to consider when compared to a residential property.

By taking into consideration all the advantages and disadvantages of hard money loans, it should be easy for real estate investors in California to weigh the checks and balances of these loans and decide whether to proceed with a hard money loan or a traditional loan for their real estate project. If a borrower intends to flip a property for profit, then a hard money loan is the best route to take, as it provides a quick and easy way to get the funds needed to repair the property and sell it in the shortest amount of time possible. On the other hand, hard money loans are also a viable option for those borrowers who do not meet the strict requirements of traditional lending institutions. If a borrower wishes to purchase real estate as a primary residence but can not do so with a conventional loan, a hard money loan is an option to take until the borrower can meet the traditional loan requirements and then refinance at a lower interest rate for a longer loan term.

Hard Money Loans In CA: Lending Alternatives Investors Should Know Inside And Out

Buying real estate in California has many advantages, especially when you buy during a down market. Real estate investment generates cash flow, gains value over time, and is a tax write-off. Most often, real estate is purchased through traditional lending practices, such as banks, mortgage companies, and credit unions. However, since the 2008 market crash in California and other parts of the United States, these lenders have made their guidelines stricter than ever. For example, you’ll need a credit score of at least 740 or more to invest in real estate, along with low debt-to-income ratio, a history of steady employment, and at least six months of liquid funds in reserve to qualify for one of these traditional loans.

For those who don’t meet these strict guidelines, there are alternatives, such as paying for the property in cash or gaining a hard money loan to finance the property. These two alternatives to traditional loans have both advantages and disadvantages. First of all, it should be noted that when pursuing these alternative methods to invest in commercial or residential property in California, it’s important to work with a trusted and reputable lender. Too many times newcomers find themselves with little experience when it comes to securing hard money loans and end up in a bad situation.

As interest rates steadily rise, many real estate investors in California are turning to hard money loans to secure a property. However, there are many factors borrowers need to take into consideration before seeking this type of alternative loan. Hard money lenders are seeking borrowers who have the collateral or equity to back up the loan rather than looking at credit. With so much on line, it’s important to be aware that there are risks that come with securing hard money loans and with higher risk often comes higher interest rates.

Read on to learn everything you need to know about hard money loans for your first or next property investment in California.
What are Hard Money Loans?

Hard money lenders are private lenders who are either companies or individuals who have money to lend. But don’t let the title fool you. Hard money loan doesn’t mean it will be hard for you to get this type of loan. What you need is somewhere between 30% to 50% equity or a substantial down payment. If you have this, you’re good to go. What “hard” actually means in the term “hard money loan” is that the real estate you are purchasing is considered a hard asset.

Some Advantages of Hard Money Loans

Whether you are borrowing money from an individual, such a family member, or from a company, the process takes much less time than borrowing from a traditional lender. Overall, a hard money loan takes about a week to 10 days to acquire, while a traditional loan can take up to a month or longer. This means there is a lot less paperwork to deal with when getting a hard money loan because the underwriter who is reviewing the loan is not as concerned with satisfying the investor since the lender is the investor. Also, hard money loans are concerned with the property’s value after it has been renovated or repaired while a traditional lender is concerned with the value of the property at the time of purchase.

Understanding Rates

While hard money loans typically have a higher interest rate than a traditional loan, this is not a problem since the loan is for a much shorter period. Most investors use this type of loan to quickly flip a property for profit, making the higher interest rate a non-issue.

The Types of Lenders You Should Avoid

In the past, hard money lenders focused on a borrower’s equity in the property. However, since 2015 when the TILA-RESPA Integrated Disclosure rules took effect, hard money lenders are now looking at the borrower’s ability to repay the loan. These rules were put into place to avoid predatory loans. To illustrate further, in the past, when a borrower could not pay back the loan, they typically lost their investment through foreclosure.

Other predatory loans include the bait-and-switch scheme. This means that the lender would guarantee a loan at a fixed rate only to then switch to a different loan at a different rate. Borrowers oftentimes went unaware of the switch until well after closing when they realized their payment was much higher than originally agreed upon. The higher payment was due to an interest rate adjustment that the hard money lender failed to disclose.

When seeking a hard money loan, it is important not to fall prey to a predatory loan. In the excitement of getting a loan quickly through a hard money lender, the borrower must work with a lender who is transparent throughout the process. All documents must be consistent with what was agreed upon by both the lender and the borrower to avoid a predatory loan.

Changes in Traditional and Hard Money Lending

Since the time of the housing crisis in 2008, there have been changes in the mortgage industry every year or two. This is a result of many factors, including a larger customer base and advances in technology. Another change is in the peer-to-peer lending sector that emerged when the LendingClub became a publicly traded company back in 2014. The point of this was to bypass traditional lending with a lending marketplace that uses an online platform to join lenders and borrowers.

Since the popularity of property flipping reality TV shows, we have seen an increase in hard money loans. In fact, these TV shows pretty much promise that anyone can make a substantial profit by flipping a property, whether they do this once or choose to do this as a career. On the other hand, when you use traditional lending, you can only expect a profit of somewhere around 1% to 5%, as opposed to the lucrative profits promised, about 7% to 20%, by quickly flipping a property and using a hard money loan to make this happen.

By using the information above, you should have a better idea of how hard money loans work, as well as the advantages and disadvantages that go along with them. Most importantly, a real estate investor must protect themselves from predatory loans and seek out only the most trusted and reputable private money lenders in California.

How To Find The Best Hard Money Lenders In California

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.

Google 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.

Lender Analyzing Returns

How Do Commercial Hard Money Loans Really Work?

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.

Home Construction Plans and Small Scale Model of Home on a Table

The Fix and Flip – How to Take Advantage of This Opportunity

Buying homes and fixing them up to sell, otherwise known as flipping homes, has rapidly grown in popularity, especially in high-demand urban areas. With the purchase of the right property, individuals can upgrade and fix homes and then sell them for a profit. However, it has to be done correctly in order to generate the returns individuals are looking for. The following will help you take advantage of this type of opportunity.

What You Should Look For

Just because a property is cheap doesn’t make it a great opportunity for flipping. The last thing you want is to buy a property in a bad area or one that requires more work that will affect whether you can actually make a profit. To prevent this issue, you need to look for properties with no major structural damage that are near good schools, have shops and other amenities close by and are easily accessible, both by private vehicle and public transportation. Sometimes these properties are located close to high-demand areas where individuals may be looking to move.

Start with a Plan

It’s always important to go into your fix and flip project with a general plan of what needs to be done. This will allow you to properly budget for the renovations that need to be done, as well as determine the selling price you need to reach in order to make a profit. Do your research to find out what buyers in the area are looking for in terms of features so you can be sure to create an appealing home that is more likely to sell quickly. However, it’s also important to stick within your set budget and have realistic expectations about the end results you may achieve.

Get the Right Financing

One of the most difficult parts about purchasing homes to flip is getting the right financing. Not only will you need money to pay for the property, but you will also need to finance the renovations you will need to complete before you can resell. If you aren’t able to secure the funds you need before you get started, you may find yourself continuing to pay a mortgage on a home that isn’t finished and you aren’t able to sell. This likely means you will have to work with hard money lenders, rather than obtaining a more traditional home loan through a bank. These lenders are often more flexible than banks and other traditional lenders and don’t need to follow the same rules and regulations. This will allow you to get all the financing you need to complete your project.

Flipping homes can be a lucrative investment if done correctly. When you learn how to take advantage of this type of real estate investment, you can enjoy a steady flow of income and the satisfaction of creating a house people will love to call home.

Taking the “Hard” Out of Hard Money Lending in California

What is a hard money lender? And why is it that many of them prefer to go by a more friendly-sounding monitor — private lender? It is most likely because when people hear the phrase hard money lender, they automatically assume a person is talking about a loan shark. What needs to be realized, though, is that hard money lending is not bad. In fact, it can be a very reliable source of funding for people who are looking to make fix-and-flip investments.

Reasons you can take advantage of a hard money lender

The following circumstances are examples of instances in which you can take advantage of a hard money lender:

  • A property is identified that you must purchase in a very short amount of time in order for you to make a good profit on the investment you make.
  • You are interested in buying a piece of property that requires extensive rehabbing but you do not want to pay for the rehab out of your own pocket.
  • You are unable to secure funding through a traditional banking institution.
  • You want to take advantage of a short and simple loan application process.
  • You need quick access to money.

You have probably heard a few things about hard money lenders before, and these things may not have been good. What you need to realize, however, is that these lenders are just as interested in making money and making sound investments as you are. They want everyone involved in the loan process to be satisfied, including the borrower. When you choose a hard money lender, you should make sure you are borrowing from an entity that provides you with a constant supply of financing as you never know when you will need to access funds for the fix-and-flips you are investing in.

The Benefits of Hard Money Lenders

As you can see already, hard money lenders bring many benefits to the funding table. Let’s take a quick look at a list of these benefits:

  • You don’t need to meet a long list of requirements to qualify for financing.
  • You can take advantage of asset-based lending.
  • More collateral options than you will find through traditional banks.
  • Hard money lenders understand the importance of making repairs to your fix-and-flip properties.
  • Lower down payments than you will have to pay to secure funding through a traditional bank.
  • Faster loan approval.
  • Quick access to funds.
  • The application process is very simple.
  • No hidden fees.
  • Reasonable and affordable loan rates.
  • Rehab properties can take advantage of short-term bridge loans.
  • Repayment options are very flexible.

A hard money lender shares the same vision you have in regards to the investments you are making. They have an extensive amount of knowledge relating to fix-and-flip investments, which is why they are so eager to lend money to help you fix up the properties you buy. They are more apt to lend money because they lend funds based on the after-value of a property rather than the current-value. They take into account what the property will be worth once the repairs and remodeling have been completed.

Knowing How to Choose a Hard Money Lender

As you can imagine, all of the benefits brought to you by a hard money lender can only be accessed if you partner with a lender that is reliable and reputable. This is why it is so important to choose a lender that has a good reputation and that you deem as trustworthy. To help you assess the reputation and trustworthiness of a lender, you should ask yourself the following questions:

  • Is the hard money lender licensed?
  • Is the hard money lender bonded?
  • Does the lender have extensive knowledge relating to the real estate area in which you are wanting to purchase property?
  • Does the lender have references you can contact?
  • Does the lender make it simple to understand any listing fees?
  • Does the lender offer flexible repayment options?

The Takeaway

If you are looking to invest in a fix-and-flip, you need to make sure that you consider all of your financing options, including hard money lending. You may have heard bad things about this lending practice in the past, but truth is, it is a very reliable source of funding that can provide you quick access to the money you need to make the most money out of your next investment.

House on Packs of Banknotes

Hard Money Funding for California Real Estate Investments

California real estate offers plenty of opportunity for savvy investors.  According to Zillow, a real estate website, home values have jumped by 6.9 percent over the course of the past year. This means that anyone looking to make money with real estate in California needs the right assets in order to move forward with the deal.

This is where hard money funding for California real estate investment comes into play. Hard money loans have become an excellent alternative to traditional financing for home buyers, especially those who are interested in flipping homes.

There are a number of benefits that hard money funding has over traditional financing. Gaining a working understanding of hard money and how it works in the California housing market will be helpful in forming a real estate investment strategy. You’ll also need to know some of the downfalls of hard money lending, such as higher interest rates and shorter terms, combined with higher down payments. It’s up to you to make sure the benefits outweigh the drawbacks of hard money funding.

An Intro to Hard Money Lending in California

Hard money funding refers to any type of funding that comes through private individuals or organizations. Typically, in California, hard money lenders are a group of investors or private entities that provide capital for those interested in buying real estate. For example, we offer hard money funding for borrowers interested in fixing and flipping properties.

A hard money loan is generally secured by the real estate itself. When applying for hard money financing, your credit score certainly comes into play, but so does the condition and attributes of the property in question. When it comes to a fix and flip property, the lender is usually equally as concerned with the after-repair value as it is with the credit score of the borrower.

As an overall rule, a hard money lender in California will fund approximately 80 percent of the property, leaving you with the responsibility of funding the remaining 20 percent from another source of financing.

You’ll also need to know that California hard money lenders generally only operate within a specific geographic region. This means that the interest rates that you’ll have for a hard money loan will be different based on the location of the desired property.

The interest rates are typically higher for a hard money loan than a traditional bank loan. The main advantage of a hard money loan is the speed at which the funding can be provided, allowing you to swoop in on an ideal property. A hard money loan can be received in as little as a week, which can be compared to the several weeks or several months of a traditional loan.

The Top California Hard Money Lending Markets

As we discussed above, different hard money lenders operate in different regions. Below are the top regions in California for hard money lenders. Gaining an understanding of these markets will help you make your decision about which market you’d like to pursue your hard money loan within.

1. Sacramento

Sacramento is one of the most promising real estate sectors thanks to a bustling economy and reasonably priced homes. According to Zillow, home prices have grown by 11.3 percent in the past year.

While you won’t find a lot of competition for hard money loans in Sacramento, there are still plenty of hard money funding option available in this market.

2. Los Angeles

With more than a dozen or more hard money lenders in Los Angeles, there are plenty of options for people seeking a hard money loan. Interests rates tend to fall between 7 and 11 percent for hard money loans in Los Angeles.

The median sale price of a home in L.A. has grown by 5.6 percent over the course of the past year, meaning there’s plenty of room to make money by flipping houses in L.A.

3. Orange County

Orange County has plenty of inventory available, and there’s competition among hard money lenders to finance home purchases. Loan rates in Orange County often fall between 7 and 10 percent, which is much lower than the California average.

Additionally, Orange County homes saw a 5.7 percent increase in the median sales price between 2016 and 2017. It’s a growing area with plenty of opportunity.

4. San Diego

San Diego’s housing market is growing by leaps and bounds, with the average home value surpassing $555,000. With a median list price of $625,000, home sales have seen an increase of 6.8%. There are several hard money lenders that operate in this area, creating healthy competition for buyers.

5. San Francisco

Much like Orange County, there is competition among hard money lenders to finance home purchases in San Francisco. This results in interest rates being much lower than the average, falling around 7 to 9 percent. Your individual interest rate will depend on the property’s location, your credit and the profitability of the property.

The median home value in San Francisco is $1.14 million. During the year of 2016, the average profit per flip was an astonishing $140,000.

Weigh Your Options Carefully

Take time to consider your options carefully before pursuing a hard money loan or a traditional loan. Keep in mind the risks and rewards of each type of loan, as well as how important speed is in your situation. If you need funding right away to secure your ideal property, hard money funding in California may be exactly what you need.

Bank Lender Meeting with Clients

Can a Hard Money Loan be Better than a Bank Loan?

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.