Not a week goes by that I do not read in some investment in real estate website, the following refrain from certain real estate investors, “Where are all the real hard money lenders?” Being an active lender of hard money, and knowing that others do this all over the country, it always amuses me. It has become apparent over the years that there has been an ongoing debate on the services that a hard money lender must offer and what criteria is justified, and in most cases, necessary for both the lender and the borrower . In this article, I hope to explain the changes that have taken place over the years in this important relationship, and what to look for in terms of hard money lenders.
First let me refer to a prevailing myth. Hard money does not necessarily mean that the loan was only basa in the equity of the property in question. This is a very common misunderstanding. Many years ago, private lenders (hard money lenders), use real property as their own security. If the borrower pays back, which was great, but if there was ever a situation default, it would be very good. The lender always paid much less on property that the fair market value, so that eventually, was a lender to make more profit by excluding goods and sell them. Therefore, I am sure many of you ask, how is that any different than today? After all, no money lender lend more than 65% -70% of the value of repair after a property, and high rates and interest rates should more than compensate for any inconvenience. So what’s the problem? Why is it so difficult to find private lenders that they do not ask for credit information? Why not make all the “no doc” loans? Where are the real hard money lenders?
Good investors, this is something that you have not considered. Years ago, most states are not state court, meaning that the exclusion of the process was simple, quick, inexpensive and did not involve a struggle that involved court. The burden of proof in many cases was in the defaulter. Under these laws, it makes sense for creditors to bypass the credit and payment history of the borrower. Either way, their investment was sound.
So what happened? Consumer protection laws and other factors have changed slowly most states in state court. Now the burden of proof for the process of exclusion has changed. And to further complicate matters, suppose that the borrower (real estate investor) rented property. With the laws of illegal settlements as they are today, the lender would be really screwed. In these cases, the lender has to go through a costly and time consuming court proceedings. Despite that, ultimately, the lender will receive the house, spending and the effort has caused the deaths of investment, and if this has happened a lot, to drive out of business. And in many cases, this is what happened in recent years the majority of equity, not only based hard money lenders.
This is why most of the money lenders hard now will check the credit ratings and, in most cases, request further documentation such as tax returns, bank statements, etc. I think that lenders rehabilitation, as well as most private lenders, are much easier to deal with, much more streamlined, and have much less paperwork to deal with a bank or lending institution. The only difference from the “good old days” is that today we are more careful about dealing with anyone. Speaking for myself, when I work with a real estate investor, I want the legal option to close, but I want to know that the history of the borrower indicates that it is highly unlikely.
Therefore, if the hard money lenders insist on checking credit, what good are they? Let me start with the obvious. Most banks and lending institutions do not want to touch rehabilitation projects. In stark contrast, this is our specialty (the acquisition of money to repair and rehabilitation projects). Even if you find a bank willing to make a deal with you, which require an initial payment? If you’re buying a property for $ 50000, and require a 20% down payment, which is $ 10000 pocket at the settlement table (and this does not include closing costs that are standard extras). With a money lender requires no down payment. In addition, no bank or lending institution that possibly do this type of loan will finance 100% of the cost and 100% of the repair costs.
Another big advantage of hard money loan is a fast turn. If you’re in a competitive bidding foreclosure property, the sale of a property or any property of a motivated seller, its ability to quickly move often determine their ability to “steal” a property. Banks usually in a thirty to sixty days to close. This will steal a competitive advantage. Rehab private lenders and most sources of money can close within two weeks. Now that’s hammer to use when bidding on a property!
One thing to be attentive to pre-payment penalties. As real estate investor, you should never deal with a loan that includes the death penalty. The faster work, the more your investment will pay off. Always remember that every day, you will be paying interest, taxes, insurance, utilities and contractors. This comes right out of their bottom line, so that all of his incentive should be flip property or refinance and conclude as soon as possible. So why you never take a loan that penalizes him for finishing fast? Our Rehab lender never and will never charge a prepayment penalty or have any condiment.
And finally, she asked to see what other benefits come with a loan of hard money that would not be available elsewhere. For example, our source has a six-month Non-Payment Plan for investors with a strong credit. Those of you who have worked on the properties difficult to know how cash flow can handle. This plan alleviates this problem, and only a hard money lender, which deals with real estate investors, day after day, would give a great program.
Therefore, do not use the hard money because “do not worry about your credit.” Use the money lenders hard because our programs tailored to their needs as a real estate investor.
