Though hard money lenders will often issue loans for almost any type of property, certain types of property investments were absolutely made for hard money. Rehab projects, construction loans, and land loans were made to be financed through hard money.
This doesn’t mean that other types of investments should not be financed through hard money. If you, the buyer of a property, have credit issues, or you need to act quickly on a deal before it disappears, the speed and convenience afforded by a hard money loan can be worth its weight in gold.
Finding Hard Money Lenders For Real Estate Investing
Many new investors fret over how they will find hard money lenders to get moving on the financing of their project. But here are a couple of simple ways to approach this:
- REIA or MeetUp Meetings: Often hard money lenders will speak at local real estate events. If not, ask fellow members to see if they know any trustworthy lenders.
- Real Estate Agent or Traditional Lender: Ask that realtor, or mortgage broker, in your real estate network if they know a hard money lender you could do business with.
- Google “Hard Money Lender”: Just be careful, there are some unscrupulous individuals out there. Be sure to ask for references and talk to fellow investors to get their opinion.
How Does Hard Money Lending Work?
Given that these are private individuals, every hard money lender is different. As stated above, these lenders come with their own requirements, which include the process they need to close the transaction.
To give you a general idea, this is the usual course hard money lending takes:
- Find a hard lender near you. Do not let the rejection of a bank loan drive you to desperation. Research and make sure the lender can be trusted. Do they have a legitimate website? Are they in good standing with their own investors? Do they have pending lawsuits over bad loans?
- Arrange a meeting with the lender. This is also the time when you can inquire whether they specialize in a kind of investment property or if they have worked with projects previously that mirror yours. Assess the time frame specified for the loan and see if this is something you can work with.
- Prepare a contract. Make sure that you are offering a good deal with a sound financial plan.
- Inform the lender of your contract price. Most lenders are willing to fund 60 to 70 percent of the property’s ARV. The remaining 30 to 40 percent is up to you. You will increase your chances of getting approved if you already have this at hand.
- Get the property appraised. The lender will either send a list of their trusted appraisers or have their own.
- Prepare additional documents needed. Some lenders may require that you present other documentation, like W-2s, bank statements, pay stubs, etc.
- Wait for the lender’s approval. If it is a deal that the lender finds satisfactory, then they will inform you of the amount and terms for payment.
- Consult with a lawyer. Make sure that you are legally protected, especially after getting the lender’s counter offer.
- Close the loan. This will be done typically at a title company or a lawyer’s office. The lender will then put the money into escrow at the title company. The title company would make sure all paperwork is completed, and that checks are issued to all parties involved. Additional costs may include any closing fees and property insurances.
More often than not, lenders grant money to properties that will not be in the market for long, that have good selling potential. Make sure your team budgets ample time to complete renovations. There’s no sense in coming up with unrealistic projections. This cannot only set you back financially but possibly burn a possible future relationship with your hard money lender.
Using hard money lending for real estate acquisitions has become commonplace in the housing sector. If for nothing else, a hard money loan gives investors an edge over those using traditional financing methods. Not only should hard money borrowers be able to secure capital faster, but sellers will also favor their offers because they are made with cash. That said, if you are looking to fund a deal, you may not want to ignore hard money; it could be the one thing that gets you what you need.
Have you ever bought an investment property with hard money? What was your experience like? Feel free to let us know how things went in the comments below.
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