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.
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.
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?
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.
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.
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.
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.
If you love watching those flip or flop shows that take dilapidated or outdated properties and turn them into gems that make a profit on the real estate market, then you might be wondering how to get the money to do something like this in your own home town. Rehab loans are a niche type of loan offered by rehab lenders, also known as hard money lenders. Typically there is a lot more for borrowers to understand with these types of loans than with traditional loans you get from a local bank. Read more
When it comes to hard money loans, what are the personal guarantees that lenders expect? Before going into that, you need to know the difference between a full recourse loan and a guarantee. Your hard money loan is either a full recourse loan, meaning the lender can lawfully pursue the borrower’s other assets to pay the debt if the borrower’s collateral is not enough to cover the loan, or a non-recourse loan, meaning the borrower’s assets are protected as being separate entities and can not risk being liquidated. Read more
If you’ve ever closed a traditional loan, you know how long it can take. However, expect a hard money loan to take even longer and to have a lot more involved in the closing process. You can expect your hard money lender to help you through this process and give you a checklist of required documents and items required to close the hard money loan.
Hard money loans have a lot of people involved in closing a hard money loan and we will take a closer look at each one and the job they need to do. Read more
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