Why Real Estate Investors Use Hard Money Loans

There are several reasons that real estate investors are choosing hard money loans. The primary reason is the ability the lender has to fund a loan quickly. In the majority of situations, hard money loans can be funded in a week or less. If you compare that to the 30 to 45 days that it can take to have a bank loan funded, it’s pretty speedy. Additionally, the application process for a hard money loan usually only takes a day or two, and in some situations, your application can be approved during the same day. You will never hear from a traditional lender about approval within the same week.

The ability that you have to obtain funding faster than a bank loan is a huge advantage for the average real estate investor. This is especially true when an investor is working to acquire a property with quite a few competing bids. Having a fast closing with a hard money loan can help to get a seller’s attention and ensure that the offer is set apart from the remainder of buyers who are using conventional financing methods.

Another reason that a real estate investor may opt for a hard money loan is if they have already applied with banks but have been rejected. Unfortunately, life isn’t always perfect, and it doesn’t always go as planned. Credit issues, foreclosures and short sales all happen. Another crucial thing that banks need access to is a person’s income history. If the borrower has recently begun a new job, then the bank may decide to deny their request for a loan because of an insufficient income history. This is the case even if a borrower has a pretty good income.

A hard money lender can look past all these issues. They will make a decision based on whether or not the loan will actually be repaid and whether or not the borrower has plenty of equity invested in the property in question.

Points and Interest Rates Paid for a Hard Money Loan

The points and interest rates charged by a hard money lender are going to vary from one to another. They can also vary from one region to another.

Because these lenders are taking on more risk compared to traditional financing methods, the interest rates are typically higher. Additionally, the points usually range from two to four percent of the total amount of the loan. Be sure to keep this in mind when considering this type of loan for your real estate investment.

Loan to Value Ratios

The loan amount that the hard money lender lends is usually determined by the value of the property divided into the loan amount. In most cases, a borrower will be able to access 65 to 75 percent of the property’s current value. While this is a riskier loan, it’s still beneficial to anyone who is borrowing the money in order to have access to faster funds.

When it comes to taking out a hard money loan for a real estate investment, there are many things you have to keep in mind. It’s best to be informed to get the best possible results. To find out more, contact Barrett Financial Group today at 480-999-6183.

Mistakes to Avoid with Private Money Loans

How to Build Trust with Private Money Lenders

Trust – It is the foundation of the private money world. Private money lenders are trying to find ways to reduce their risk and trust goes a long way when trying to reduce the perceived risk present. While you can create contracts, deeds and notes, all these documents are no good if you aren’t honest and trustworthy.

The question you have to answer is how to build trust with lenders. The good news is, there are several ways you can do this. Learn some of the methods here.

Be Trustworthy

This is simple, but extremely effective. Just do what you say you are going to do and live up to your commitments. Show up to appointments on time, pay your bill and follow through on promises. All this is going to affect the way other people view you, and your trustworthiness. Private lenders are likely going to ask about your character, so make sure you are trustworthy.

Document Your Trustworthiness

If you’re trustworthy you can prove it with documentation. Create a “Banker’s Book” showing your trustworthiness. Also, acquire a copy of your credit report and show how other real estate projects you have taken on were successful. Include a list of references in your book.

Explain Things with Simple and Clear Language

Don’t try to spout all types of real estate and technical terms. Most people won’t understand and may become confused or turned off from the deal. It’s better to keep things simple and explain what you are doing in clear terms. In most cases, lenders only want to know how and when they will get repaid.

Listen to Find Out What Your Lender Wants

Much of what makes a successful real estate investor is listening. Stop to listen to what your potential private lenders have to say. Don’t just focus on your needs. Find out what their goals and needs are to ensure they get something out of the deal, too.

If you want to work with private lenders, be sure to be trustworthy and find out what your lender wants. In the long run, this will help you be more successful.

Mistakes To Avoid As A First Time Investment Property Owner

So you’ve decided to start thinking about the future and finally take the leap into property investment. Congratulations! Being a property owner can be incredibly rewarding both personally and financially, but only if you make the right moves. Fortunately, many people have been where you are now, and you can learn from their mistakes to ensure you get the most out of your investment property endeavor. So with that in mind, here are the top mistakes made by first time investment property owners that you should do your best to avoid:

1. Not Treating it As a Business

Make no mistake; investing in property ownership is a business. You therefore need to keep emotions out of your decisions and make smart, analytical moves. This should go without saying throughout the process, from deciding which property to purchase in the first place to filling it with tenants and maintaining it. On that note, it is also a good idea to consider enlisting the help of an experienced property management company.

2. Relying on Appreciation Alone

A lot of people tend to buy property with the expectation that, with time, the property value will go up and they’ll get a big payoff in the end. While property values do tend to increase with time, the truth is that the monetary difference is often not nearly as much as people expect. Additionally, outside, uncontrollable factors like the fluctuating economy and occurrences in the surrounding local community play a huge role in property value. So when you purchase property, you need to not only make sure that there are unique aspects about it contributing to its value but that you are also willing to put in additional work to make sure that happens.

3. Not Doing Enough Research

Many first time investment property owners also unfortunately do not perform adequate research before making the decision to purchase. But just because a place looks good on the surface does not mean it’s automatically a smart investment. It’s important that you do your research into things like the building history and any structural damage / repairs, the surrounding community and any potential crime / economical issues, etc. Doing so will also help prevent you from overpaying on a property.

4. Not Properly Assessing Your Financial Situation

It may seem like a no-brainer, but a lot of people still underestimate the importance of making sure all their finances are in order prior to investment. You need to make sure you at least have enough money for a down payment, much less be able to continue making payments. Even if you can afford the property outright, you need to make sure you have the funds for things like property taxes, repairs and renovations.

Use Hard Money Loans for Real Estate Investments

If you’ve been thinking about earning money flipping houses and investing in real estate, it will be important to find a lender who will be able to help you get the money you need to purchase these properties and make the necessary renovations to turn a profit. Hard money lenders are one of the best ways to ensure you have the financial backing you need to successfully flip homes. Unlike the traditional mortgages most people get, these types of loans don’t look at your credit, but are instead based on the value of the property itself. This means they are typically easier to qualify for.

A Higher Risk

One of the few downfalls of using hard money lenders is the higher interest rates they charge. This is because this type of loan is generally a higher risk for the lender. They often put in a high amount of capital and the borrower invests little of their own money. However, the property itself is the protection against defaulting on the loan, which typically means a much lower loan to value ratio, In many ways, the benefits of using this type of loan far outweigh the risks, such as the higher interest rates.

A Faster Turnaround

When it comes to obtaining a loan for flipping homes, a fast turnaround is essential. Waiting to be approved for a traditional loan can take weeks or even longer in some situations. However, when you find a hard money lender, you will be able to get the money much faster and get to work. In addition, low-cost homes that are typically sought-after by this type of real estate investor often close quickly on the market. Having to wait for a traditional loan can lose an investor the sale and cost them a valuable investment.

A Short-Term Solution

Traditional mortgages are designed to be paid back over a much longer period of time. If you’re buying a home to flip it, chances are you only plan to hold onto the home for a few months while you make some necessary renovations. Hard money lenders often focus on providing loans that are meant to be paid back in less than a year. In addition, they are much easier to qualify for, allowing you to get the money you need to flip a home and get the most from your investment.

If you’re interested in investing in real estate, such as flipping homes, you will need to be able to get the capital you need to turn these investments around quickly. For many people, hard money loans are the best option to achieve this goal and help you get the most money for your investment and hard work.

Fix and Flip Your Property with a Hard Money Lender

The concept of the “fix and flip” property loan is one that has grown substantially in the past few years. This is because more and more people are looking to invest in real estate and take advantage of the additional income opportunities this provides. However, these loans are different than the ones given when a property is bought with the intention of selling it one day.

Understanding Fix and Flip Loans

A fix and flip loan mean that the property that is being bought is typically distressed or run down. The investor is purchasing it with the intention of renovating it and then selling the property for a profit.  The lenders providing these loans are at somewhat of a higher risk, since there’s no guarantee the property will sell for a profit, but there are more and more lenders coming into this space due to the demand that is now there.

Finding a Fix and Flip Loan

It can be extremely challenging to get funding for a fix and flip property the traditional way. Also, paying for this type of property out of your own pocket is also pretty risky. The majority of banks aren’t going to provide any type of long-term financing option for fix and flips, nor will they provide short term loans because the returns aren’t very good. The majority of fix and flip properties are sold within 12 months or so of being sold. As a result, a hard money lender may be the best option for obtaining the funding needed to purchase the property in question.

Why Use a Hard Money Lender for a Fix and Flip Loan?

The fact is, hard money loans offer competitive rates. Even better, there aren’t any requirements regarding bank statements, tax returns or a person’s credit score. AS a result, the company is able to help the investor with their fix and flip project.

Finding a Hard Money Lender

In some cases, the real challenge is finding the right hard money lender. Not all of these service providers are created equal and it is necessary for you to take your time to find a reputable company to work with. This is the only way that you can feel confident you are protecting the investment you have made.

If you are thinking about seeking out a fix and flip loan, then don’t rule out the possibility of working with a hard money lender. The fact is, these companies make it easy for you to make the investment and then earn a profit. Just make sure to chose the right company to work with before moving forward with the project at hand.

Phoenix Real Estate Growth in 2018

2017 was undoubtedly one of the best years to sell a home in metro Phoenix. An astonishing 93,500 houses in the Valley exchanged ownership last year, which was a six percent increase when compared to home sales in 2016. According to a senior housing analyst, Tina Tamboer, in comparison to the prior 15 years, only the years of 2004, 2005, and 2011 saw better home sales.

It was during those years that the housing market acted anything but normal. In fact, the housing boom during those years largely took place because of an excess in subprime mortgages, giving buyers incredible financing options for purchasing a home. This housing boom started in 2004 but didn’t last long, hitting its bottom in 2011. It was during that year, though, that investors quickly noticed they could snatch up foreclosure homes at bargain prices.

2017 was unquestionably a very healthy year for purchasing a home in the Valley. Tom Ruff, an expert real-estate analyst, predicted the year to be one of the best years for buying a home and says, “2005 went down in the history books as the year our housing bubble rapidly inflated. 2011 was the year housing prices bottomed out after the housing-market collapse.This leaves 2017 as the very best year for Valley resale homes in our history not influenced by some freakish market outlier.”

2017 Was Good, but It Still Wasn’t As Good as 2006

Even though 2017 was a strong year in regard to the appreciation of homes in the Valley, the peak levels occurred back in 2006. 2016 saw a seven percent increase in median sale prices for homes in the Valley and continued to climb another 6.5 percent in 2017. However, with a current median sale price of only $250,000, this still puts average selling prices $15,000 lower than they were in 2006.

Predictions for 2018

The housing market in 2018 is expected to perform just as well as it did in 2017, but there will be several factors working against the market, including:

  • Lack of affordable housing
  • Inflation
  • Interest rate hikes
  • New tax laws

Ruff goes on to say that “The challenge is to build more housing that people can afford. Valley prices can’t keep climbing at the current rate if people can’t find homes they can afford.” Tamboer predicts a softening in appreciation during 2018. She says home prices will continue to climb throughout the year, but they won’t do so at the same rate as they had during the past two years.

In order for Valley home prices to fully recover, they will need to increase by at least six percent. 

Hard Money Lending for Your Construction Project

When most people think of hard money lending situations, they think of borrowing the money to purchase a home you intend to use as an investment. However, this isn’t the only use for this type of loan. In fact, you can also use them for certain construction projects. The benefit of choosing these types of loans over traditional loans is you can borrow an amount based on the potential value of the completed project rather than the current value of the home.

Why Hard Money Lending Is Better

If you seek a traditional loan for your construction project, you will be severely limited based on the current value of your property and how much equity you have. Hard money lenders often operate differently. These individuals are more interested in the investment potential of a property and are thus more likely to lend you a larger amount based on how much the construction project is projected to increase the value of the property. They also don’t place importance on your current credit score or many of the other factors traditional lenders take into account to determine whether you qualify for a loan and for how much. These loans can be used to start a new project or complete an unfinished project you ran out of money to pay for.

How to Locate the Right Hard Money Lender

Not all hard money lenders are interested in borrowing to individuals who need the money for a construction project. This can make it a little more difficult to find the right one. First, it’s important to inquire whether they have experience in construction lending. Once you find several that offer lending for construction projects, look up reviews on third-party sites to ensure you work with an individual who has a solid reputation in the field. Once you choose a hard money lender, you will need to provide the precise details of your construction project. This can help them decide whether they are willing to take the risk of lending the money for this type of project. Once they evaluate the property, the scope of the project and the prospective increased value the project will bring, they will be able to offer the money you need to get the construction project done.

Choosing a hard money lender for your construction project is one of the fastest, easiest ways to fund this type of project. These types of loans are often easier to acquire than obtaining money from traditional lending institutions, such as banks, because they don’t look at the current value or even your credit history. They are more interested in the potential for the increase value of the property as an investment opportunity.

The Growing Popularity of Hard Money Loans

The past several years have seen significant growth in a certain lending trend– hard money loans. Though it has technically been around since the 1950s, this form of lending has grown in popularity for a variety of reasons. People are drawn to them because they tend to have faster documentation and approval processes, are mutually beneficial to the borrower and lender and are generally free of frivolous costs and fees, not to mention the fact that they are also not based on credit scores. But before deciding to jump on the bandwagon, both investors and potential borrowers should learn as much as possible about this arrangement.

Where Does ‘Hard Money’ Come From?

Rather than banks, hard money generally comes from private lenders. Instead of credit scores, it is based on assets and the value of the project or property the money will be funneled toward. This means fewer obstacles and, usually, less time between the loan application and the release of funds.

What Are Hard Money Loans Intended For?

Hard money loans are meant for projects like construction and remodeling, house flipping, property purchases and real estate transactions in general. They can be used for both long-term and short-term projects, but most financial experts recommend going for short-term because there is a lot more uncertainty with long-term situations. For example, project values can change, and borrowers may find that they still don’t have enough funds, or investors may see their returns not turn out as expected.

The Mutual Benefits

Again, the borrower often has faster access to the money they need in addition to having less red tape to cut through. Instead of having to go to a bank with a proposal or address a committee, the borrower deals directly with an individual or small group of lenders, and the approval process generally just consists of whether or not the lender will say “yes”. The lender meanwhile benefits by getting a higher return on their investment– in this setup interest is either a fixed amount or at a higher percentage than private banks. And just as the borrower gets the invested funds faster, the lender also has less paperwork and legal matters to wade through in order to get their return.

Know the Law

Generally speaking, there are actually not too many laws governing hard money loans (part of the reason the lending process is easier is because it’s largely unregulated). That said, certain states (like Tennessee and Arkansas) have restrictions placed on interest rates that can ultimately affect hard money arrangements. Both lenders and borrowers should thoroughly educate themselves on their local state laws before moving forward with a hard money deal.

The Bottom Line

Hard money loans will most likely continue to grow in most areas, especially in places where real estate and construction are booming. Interested borrowers should talk with local private lenders about this opportunity.

8 Reasons You May Need a Hard Money Loan

Most people are familiar with traditional loans for their business, but there are other options that can actually be more beneficial, such as hard money loans. There are many reasons you may want to look at hard money lenders in Arizona to provide you with the funding you need for your business purposes. In many cases, it can be difficult for those interested in investing in businesses to qualify for loans through banks and other traditional lenders because of the strict federal regulations. Even individuals who have a solid business plan and great credit history can be rejected through traditional methods. While not everyone is a good candidate for hard money lending, there are certain situations that benefit from these loans.

Reasons for Hard Money Loans

You should seek hard money lenders in Arizona if you match one of the following:

  • You need funds more quickly and have the escrow to back it up.
  • You want to avoid the red tape experienced with traditional loans.
  • You’ve gone through foreclosure or a short sale that has harmed your credit history.
  • You have declared bankruptcy or suffered another dent in your credit.
  • You are either self-employed or don’t have a stable job history.
  • You already own a number of investment properties.
  • You don’t have the assets and funds to qualify for traditional bank loans that require collateral.
  • You are the owner or representative of a non-profit organization, LLC, corporation or other entity that is searching for property.

Who Can Benefit

Most people who contact hard money lenders in Arizona do so because they need a short-term financing solution they can get more quickly than traditional loans. Private lenders will often approve a loan in as little as a week or two. than the weeks or months traditional loans can take. However, it’s important to realize the underwriting process is quite different, especially considering private hard money lenders don’t have to follow the same regulations set forth by the federal government. While you can expect an easier approval process, even if your credit is less than stellar, this doesn’t mean they will lend to just anyone. They may look at the credit score, but they will also consider a person’s character, their ability to pay back the loan in general and the value of the property. They will be able to structure a loan to best suit the needs of the individual, rather than following the regulations banks and other traditional lenders must follow.

If you’re in need of money to fund a business venture and don’t have a lot of time to spare, seeking assistance from hard money lenders in Arizona can be the ideal option.

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