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

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

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.

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

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Lender Meeting with Clients

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Loan Contract Being Signed Stamped and Approved

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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

Banker Accepting Payment for a Loan at a Bank Window

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Lender Analyzing Returns

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