Hard Money Lenders: The Most Creditworthy Investment Partner By Real Estate Investors
One worry that many new real estate investors have is where to find cash for real estate investing. And as soon as new property investors begin to learn about the various opportunities they can have, they’re certain to see the phrase “hard money lender”. So, what is a hard money lender?
A hard money lender is a private individual or small organization of private lenders who are normally locally based in the community where the real estate is being bought. Hard money lenders frequently look into a potential real estate value when determining whether or not to make a mortgage on a selected real estate property. Not like common financial institutions or credit firms, they are generally less focused on a particular individual’s economic record, situation, or credit score. The property is the primary guarantee for the loan.
Hard money lenders normally charge a large cost to grant a loan, this means a couple of points more and an extremely high rate per loan; many real estate investors don’t use hard money lenders because of this. Most hard money lenders can finish a loan (which means you could have cash in hand) in just 24 hours.
If looking into whether or not to make use of hard money, you need to determine your revenue to make a decision if this is something that may be worth it to you. Should you require cash in two days and will gross forty thousand dollars when all is said and done, does it really matter if you have to pay out $10,000 for the money? Or is it just a part of the costs of doing business? Only you can figure this out.
The right way to choose a hard money lender is to talk to individuals who are actually used their services. The easiest method to do this is to ask other existing traders. Search for other investors by joining REIA events. Another excellent means to get other traders is to go to property foreclosure auctions. Find out who is putting in a bid on which properties, give out business cards and start a conversation. Ask them where they are obtaining cash and go to the same individual or place.
You can also talk to:
Law firms and/or title companies (that take care of closings for other investors)
Real Estate Agents (that deal with investors)
Bank Officers (small, local banks that are portfolio lenders, lenders who retain the loans “internally”)
To locate a hard money lender, you need to tell all people you know that you are a real estate investor. You need to build a team and you need to network with other investors. Quite often if the figures on the offer are decent, finding the money shouldn’t be a concern.
Hard Money Lenders: How To Improve And Flip Initiatives
All these television programs regarding staging houses to market, rebuilding houses and “flipping” real estate houses as an investment have provided most people in the real estate industry additional strategies about their own endeavours. So much in fact that several business individuals who have had knowledge and reputation in the construction industry have picked up the encouragement they needed to finally take a gamble and go to some real estate investments of their own.
The catch is, particularly for either new fix and flip investors, when they have discovered the perfect estate, the kind that is available for the ideal cost, the suitable size (the kind that features only the scope of repairs and issues which they could more than effectively work with), and the best spot, their finances has usually been blown.
This is where hard money lenders come into play. With their easy, minor hassle and paperwork requirements as opposed to the common processes arranged by traditional loan companies; hard money lenders usually are the right allies for this kind of undertakings.
To the true business minded person, using the services of hard money lenders on a fix and flip project mustn’t be a problem. In reality, it might be the ideal situation. First, they’ve got the same objective planned: to make a profit. A hard money lender will deal in cold hard facts about the potential clients of a venture. If it looks assuring, they’ll normally and instantly jump in. This is basically the difference between taking a look at a project coming from a seriously entrepreneurial standpoint.
Why would hard money lenders support these developments? Basically, they can earn a lot from funding these fix and flip endeavors money, a lot more compared to the ordinary lending institutions would. The trade off is,the businesses may obtain loans prepared and approved much faster with such companies than through banks, if banks would consider their applications whatsoever.
Hard money lenders usually appraise the property or home involved to figure out its cost; this is usually performed by a neutral third party to avoid disputes over the findings.
Once the financing has been approved, everyone will be on their way to fixing and flipping the house and turning it into the next F word: financial gain.
Hard Money Lenders: Your Prospective Partner In Your Upcoming Campaigns
When real estate traders discuss about hard money lenders, they’re referring to private groups or individuals which have more flexibility to generate a number of mortgages. They can make this happen, because they are not governed by the same restrictions that commercial banks need to function under. They have the power to pre-approve applicants and achieve their purpose instantly. For this and other factors, they’re becoming more and more well-known, especially with rehabbers.
Even if you are experienced in investing, reconstructing and reselling property, you may find that it is more difficult to have a regular financing than it was previously. Bankers, hurt by the effects from sub-prime financing created several years back, are being more thorough nowadays. You may need to find a different solution for your future endeavor.
Although hard money lending is not new, the mixture of today’s financial situation and its influence on the real estate sector has developed new interest in this type of non-traditional funding. With the economic challenges in some of our big cities, more homeowners are transferring or changing jobs. A few are just unable to keep up with those flexible interest levels and balloon payments or just the increasing home taxes. Many of us can notice the potential for great revenue when sellers are this passionate. All we have to make that revenue is funding.
Buyers can get the best amount on a property when, for reasons like those stated above, the seller needs to close fast. Bankers do not often understand the necessity for speed. They take the same span of time, usually no less than one month, to close, in spite of the details of the deal. It requires about two weeks to have a loan granted and they do not pre-qualify loans or offer proof of income notice. Basically, they do not allow special considerations for the rehabber. Hard money lenders are experts in assisting rehabbers.
Selecting hard money lending over a usual bank financing can help you benefit from your existing funds, acquire more properties and get them fixed immediately without creating cash supply problems. 100% funding of the purchase cost, the maintenance fees and even the closing expenses may be presented if you could find a really decent purchase price, comparable to the after repair value.
There are other reasons to consider private, rather than commercial loans. Efficient closing, more adaptable payment packages and no charges for early repayment are one of them, however keeping the cash “flowing” is among the most important.
Do You Know The Refinance Rules For Rental Properties?
A big part of our mission here at HMB
is to be a valuable source of info
on the world of real estate investing.
Our clients are our lifeblood and if they
aren’t doing deals, neither are we.
So here is a tip for this week, that I
recently learned from a mortgage loan
officer friend of mine:
An investment property MUST be off the
market for 6 months or more before a
refinance is possible. Even a rate/term
refinance.
This is a guideline for most every bank/
lender out there.
Let me rephrase that in a way that
might sound more familiar:
You buy a property to rehab, using either
cash or a hard money loan. Your plan is
to sell it, as long as you get the price you
want. If it doesn’t sell, you’ll just refi and
hold it for awhile.
Right? Sure, this is a very common
scenario.
But now that refi won’t be approved for 6 months
because it was listed on the market for sale!
Ouch!
So a word to the wise: look into doing the
refinance BEFORE you put the property on
MLS!
Doing it that way could save you some real time
and trouble.
We hope that tip helps! Stay tuned for more.
Jason, Jeff, Chris and Ben
HMB Cribs Bloggers
Hard Money Bankers, LLC
http://hardmoneybankers.com/
Please enjoy what we hope will be an entertaining, informative and unfiltered look at the ups and downs of living the real estate investor lifestyle. We’re going to show you how investors are making (and sometimes losing) money in real estate. We’re also going to give you the tools you need to make money and stay on the winning side of your deals. Remember to check back often, as we will continue to post valuable new content.
Hard Money Lenders: Gains You Can Get From Private Money Lenders
Who does take a chance on lending to a person in foreclosure? Who would advance money to a borrower seeking to buy a big house whose worth has not been properly confirmed with a standard assessment? Is there any person who would take a chance on re-financing somebody’s home loan in order for this individual can get large amounts of cash?
This is nothing new for private money loan companies or individuals in the hard money loans industry; it’s practically all in a day’s work. Hard money lenders are private individuals, groups, or small nearby businesses who function past the standard borders and restrictions of traditional lending institutions. They create loans obtainable to those in need and yes, the hopeless, just like financial institutions do for their regular customers.
Private money lenders are naturally much more costly when it comes to interest rates; but at times being the only ones in the spot to help unlucky credit seekers salvage awful conditions. There are actually private traders who, if ever the condition is favorable (interest rate is high enough and the risk is low enough), would certainly set up the money for a borrower. There are actually agents along with other agents who set up such hard money lender transactions or private money loans.
If perhaps it all looks somewhat too questionable and a bit too much of the underworld, fear not. Private money lenders will not send Chili Palmer after you in the event you skip a payment. They’re not in the business of busting kneecaps. There aren’t any enforcers. Although, this is business. They charge interest rates that will make standard borrowers tremble and typically structure financing choices on regardless of whether there will be sufficient equity in their subject asset they can foreclose and still earn an income. Private money serves a unique market and naturally, fulfills a sector in mortgage lending; it assists customers who’ve specific requirements or credit issues that will obstruct the approval of their typical funding. That is, if you’re able to find them.
In general, private money lenders tend to function within a selected geographical limit. They want to look at properties they’re lending against personally and know the place of the area, so to speak. In case you are searching for these types of private lenders, check your local newspaper’s classifieds or search on-line for nearby home loan brokers and check around, it won’t hurt.
Who Is To Blame For The Crisis
I hope you’re having a fun-filled and relaxing summer.
Have you, like me, been taking time to chill on the beach with your dog named Skipper and read exciting non-fiction books about the U.S. fiat money system and failed economic policies? I knew it!
I hadn’t planned on blogging until summer was over, but when I read an interesting research study, I sent ol’ Skip out to fetch a stick and started writing.
The Pew Research Center, which analyses Census Bureau data, has reported that as of 2009, white households held a median wealth of $113,149, roughly 20 times that of blacks and 18 times that of Hispanics. Pew also reported that from 2005 to 2009, median wealth dropped 66% among Hispanics and 53% among blacks, compared to only 16% for whites.
Citing plummeting house values as the principal cause of the decrease in household wealth, Pew comments that this is the largest wealth gap between minorities and whites since the government began tracking the data more than 25 years ago.
Below is a link to the study:
http://pewresearch.org/pubs/2069/housing-bubble-subprime-mortgages-hispanics-blacks-household-wealth-disparity
I found myself baffled by this report. It made me question how this was even possible. How could the gap be so unequal in this Country?
It’s easy to claim racism. And, yes, nobody can deny that disparity still exists due to long-standing prejudice and racism toward minorities, as well as a lack of equal opportunity. But, if we dig deeper, we can reveal another disturbing truth behind these numbers:
In order to promote home ownership among lower-income America, a “perfect union” was formed in the 1990′s between certain government officials (such as Barney Frank and Chris Dodd), James Johnson & Franklin Raines (the then CEO’s of Fannie Mae), and Wall Street executives.
By the late 90′s, the “Barney Frank group” had turned Fannie Mae into a private piggy bank. Through political pressure, favoritism, and thumb screws, Fannie and Freddie were forced to implement sloppy lending standards to meet some whacked-out vision that each American “deserves” to own a home, regardless of that person’s credit worthiness.This allowed anyone with a large down payment to get a large mortgage.
Meanwhile, on the Fannie front, James Johnson amassed a personal fortune estimated at $100 million during his nine years as CEO of Fannie Mae, and both he and Raines encouraged loose lending practices to grow this toxic GSE (Fake Definition: Government-Sponsored-Enterprise. Real Definition: taxpayers are on the hook for its shitty lending practices).
It is now reported that Fannie Mae, among other things, lied about profits, intimidated its adversaries, bought off Congressmen, stacked congressional hearings with friendly bankers and activists, and even hired friends of key members of Congress (including Barney Frank’s partner).
And any time rational observers objected to these increasingly dangerous lending standards, Frank and the rest of the cabal would silence their alarms by accusing them of opposing housing for the poor.
But certainly the brilliant minds on Wall Street would step in to bring sound business judgment to this nonsense and stop it, yes? — NO!
Instead, Wall Street became a willing participant. It’s rich, white executives acted as drug peddlers for reckless mortgages. They created complex computer models which “concluded” that housing prices would never go down, engineered exotic mortgage-backed security products that not even the smartest people could fully comprehend, and entered the black box world of credit default swaps to the tune of trillions of dollars. All in a concerted effort to dump toxic mortgage garbage on unsuspecting investors when they knew default was inevitable.
We all know the end result. Home ownership rose to an all-time high of 69.2% in 2004 but, when the inevitable crash came, $1 trillion in loans became $1 trillion in bad debt. And, as we can see from the Pew Report, minorities were hit the hardest. The people Frank and the rest of the cabal intended (or pretended?) to help are now losing their homes, their credit ratings, their life savings, and the American dream.
Homeowners aren’t the only ones being affected by these practices, real estate investors are also having a tough time.
If you’d like to spend this summer learning how Frank, Fannie, or Whitey (your choice) destroyed the U.S. economy and helped create the largest wealth gap in modern times, I would suggest reading “Reckless Endangerment,” a new book by Gretchen Morgenson and Joshua Rosner. Gretchen Morgenson is a business reporter and columnist at The New York Times. She was awarded the Pulitzer Prize in 2002. Joshua Rosner was among the first analysts to identify accounting problems at the GSE’s and to warn of the coming credit crisis. These authors have taken a detailed and fascinating look at how greed and government distortion of markets led to the housing meltdown.
Read a WSJ review here:
http://online.wsj.com/article/SB10001424052702303745304576361531730887312.html
If you want to buy it, you can order it here:
Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon
Click here if you need a hard money loan.
Shadow Inventory And Real Estate Investing
If you conduct a search for real estate news you’re more than likely to find a number of articles referring to shadow inventory. Many of these articles have titles such as, “Shadow Inventory Causing Delay in Recovery” and “Shadow Inventory Hints that Real Estate Bottom is Near”.
Many of my readers have been asking me about shadow inventory, what it means for real estate investors, and how it’s affecting the recovery. As hard money lenders who primarily lend to real estate investors we have been watching this situation closely.
What exactly is shadow inventory?
Shadow inventory in real estate refers to properties that are in default, foreclosed on, or already bank owned. Basically, any property that is or was distressed that will be on the market in the future, but not yet, is shadow inventory. The reason it’s called shadow inventory is because the properties lurk in the darkness of banks’ balance sheets waiting to be put on the market and sold. Banks either can’t or don’t want to sell them yet (I’ll explain why below).
Who is looking to buy the shadow inventory?
Once the banks do decide to sell the properties, they are most likely going to sell for just below market value and they will most likely need repair or rehab. (Many properties have been vacant for months or years.) Real estate investors have been chomping at the bit, waiting for banks to begin releasing the properties so they can get their hands on some and turn a profit. Once the banks are ready to begin letting them go in large scale, there should be an influx of properties on the market ready for investors to make them livable again.
Homeowners too would like to get their hands on cheap properties but financing and other restrictions exist that prevent many from buying directly from banks.
But real estate investors aren’t the only ones watching the shadow inventory closely. Economists are also keeping an eye of shadow inventory for a few reasons. They know that when the banks begin to release the properties in large numbers, the banks are signaling their prediction that the housing market has already hit the bottom and is on its way up. Also, because housing is such an important factor of the economy as a whole, shrinking shadow inventory means an expanding economy.
How can shadow inventory help recovery?
While it’s no secret that a growing housing market plays a huge role in the economy, the converse is also true; stagnant housing causes high unemployment and slow expansion of GDP. Each property sold can add tens of thousands of dollars to the economy just in the form of furniture, fixtures and labor.Loans also help the economy. It’s called fractional-reserve banking. (This is not a Macroeconomics course so I won’t bore you with the details but feel free to do some research on your own.)
So why don’t the banks sell the properties now?
The shadow inventory is so large now for 2 main reasons. One reason is out of the banks’ control and the other is a business decision made by the banks.Many states have laws that slow foreclosures. Mediation and modification attempts are required before the bank or loan servicer can reclaim the property. In many areas this can take a year or more. In addition to local regulations, the banks know that holding the properties will allow home prices to rise and therefore they can get a higher return when they do sell. Most people understand the principle that banks are not in the business of holding properties for any longer than they have to. Common logic would say that selling the properties and getting them off the books would benefit the banks. For the most part, this is correct. What needs to be compared is the price of a house if it sold today versus the price it will sell for in the future minus carrying costs. I haven’t independently verified the figures but if the banks are intentionally holding properties, the expected future price (minus carrying costs) must be higher than today’s price.
If and when the banks decide to begin releasing the shadow inventory in large scale is anyone’s guess but once they begin to hit the market, expect to a positive swing in the economy.
Read more about this subject at http://www.HardMoneyBankers.com/real-estate
HR 1526 - Read It Through First
Bill Posey (R-Fla.) has introduced H.R. 1526 in the U.S. House of Representatives. Under the proposed law, early distribution penalties would be waived on qualified retirement plans IF the funds are used to buy a house that has been in foreclosure for one year or more AND the purchaser holds the property for 2 or more years.
Posey’s concept seems to be that this would promote homeownership and stabilize neighborhoods, rather than having an investor swoop in, buy the property, and quickly “flip” the home for a profit.
I certainly love the out-of-the box thinking, but I don’t think he’s thought this all the way through.
Has Posey actually been around homeowners? How ’bout conventional lenders?
In the world of consumer retail real estate, I have found 2 things to be true:
1. Retail homeowners need to lower their standards. How many quality properties does he think remain listed for more than a year? Perhaps he’s in a State where that’s true, but that’s certainly not the case in my home State. Usually, properties that are in good, move-in condition sell within months as long as they’re priced correctly. Only the investor grade or bottom-end properties sit for more than a year. Why? Nobody wants them because they’re junk, over-priced, or mired in endless short sale red-tape.
2. Conventional lenders hate junk properties. Think about it - it’s tough enough to get financing on a good property.Conventional lenders only want to lend on properties that don’t need a lot of work. Therefore they won’t lend on a property that had been sitting artound for a long time.. We all know that conventional lenders won’t lend on properties that need anything more than paint and carpet – so who’s going to lend on these properties? Hard money lenders? Oh, that’s right – our same government has over-regulated us out of the consumer real estate marketplace.
One other point of contention with Posey – so what if investors are “swooping in” and making a quick profit? They’re taking the risk – they deserve the profit. It’s called c-a-p-i-t-a-l-i-s-m. Posey, like so many morons in Congress, fail to understand or appreciate that we investors, not them, are the engine to the housing recovery. We put properties back to productive use and increase job creation and tax income. We are vital to the system but, instead, are always portrayed as the villains.
Did Posy bother to read that over 35% of real estate transactions last year were cash or investor transactions? There’s a reason for that. Homeowners aren’t interested in grunt work. They’re letting the investors do the hard work (short sale negotiation or rehab), then buying them when they’re in good shape and priced correctly.
I have a better solution: Simply let anyone buy a property from his or her retirement account, regardless of the nature of the property. Investors already do this from self-directed retirement accounts. They buy properties from within their IRA’s and make profit tax-free or tax-deferred. If investors can do this, why not open it up to homeowners? Consumers would be super-excited to be able to buy their home and enjoy the appreciation tax free. And better yet, the home would be immune from creditors because it sits in an IRA. Now that’s a bill worth passing!
The 3 Keys To A Successful Wholesale Deal (guest Blog Post)
Many thanks to our guest blogger, Cornelius Henderson from Cooperative Solutions LLC, based in Washington, DC. Cornelius has a wealth of experience in wholesaling real estate and has provided a few very valuable tips in his post below.
Don’t forget to sign up for our FREE webinar this Thursday 3/31 with Vena Jones-Cox
“Earn a Six Figure Income Wholesaling Real Estate in 2011”
http://bit.ly/FlipMore –Sign up here
The 3 Keys To A Successful Wholesale Deal
Some people call it “flipping houses” while others call it “wholesaling.” New investors execute this investing strategy because they know it allows “newbies” to get involved in real estate without a lot of their own money or risk. Experienced investors execute this strategy so that we can maintain positive monthly cash flow to satisfy our bankers and pay the monthly bills. Regardless of your investing experience, the ability to execute a successful wholesale deal is an essential tool for any real estate investor. There are three fundamental steps to a successful wholesale deal: the motivated seller, the qualified buyer and the ability to provide a turn-key experience. I will illustrate each of these through a deal we completed in Washington, DC.
The first and most important step to a successful wholesale deal is to get a property under contract from a motivated seller. My personal favorite motivated sellers are personal representatives of estates, frustrated landlords and out of town landlords. This particular deal was with a guy in Florida who was the personal representative of an estate with a property in DC. The property was in fair condition and we determined that with about $50,000 in repairs, it would be worth about $330,000. Based on this information, we knew the investors on our Prime Buyer’s List would buy this property for about $165,000. Although the seller asked for $175,000, we successfully agreed to a purchase price of $150,000 which would provide us with a $15,000 wholesale fee. Once we had the contract, the most important part was complete but we still had two more steps to get our check.
The second step to obtaining our wholesale fee was to obtain a qualified buyer to assign our right to purchase the property to. We pulled a buyer from our list that said he was active in the area and we gave him the first shot at the deal. We had not worked with the buyer before so we requested a substantial deposit and verification of the hard money relationship that he was using. These are important steps in today’s current marketplace. The days of posting a deal on Craigslist and getting a buyer who can actually close on a deal are over. You MUST qualify your buyer! Do not skip this step or you may not get your check!
The final step to our deal is our ability to provide a turn-key experience. This buyer was interested in our deal because the numbers worked and we provided everything for him. We provided the comparable properties sold in the last 3 months, pictures, virtual tour, approved hard money lender, estimates from a licensed and insured contractor, closing attorney and title company PLUS a list of buyer’s agents in the area who have potential buyers. Essentially, all he had to do was bring the cash needed to close the deal, tell everybody “GO” and then cash his check at the end. In this market, providing turn-key customer service is critical to getting your wholesale check whether the investor uses the services provided or not.
In summary, a successful wholesale starts with a motivated seller. Once you have the deal, you simply have to locate a qualified buyer and provide a turn-key experience. Naturally, if you are looking for a quality wholesale deals, join our Prime Buyer’s List at www.DCMetroRealEstateDeals.com. Additionally, we provide a wealth of FREE information on our Facebook page at www.facebook.com/cooperativesolutions.
About the author…
Cornelius Henderson is the managing partner of Cooperative Solutions, LLC, a residential and commercial real estate development firmed based in Washington, DC.
PS-
Don’t forget to sign up for our FREE webinar this Thursday 3/31 with Vena Jones-Cox
“Earn a Six Figure Income Wholesaling Real Estate in 2011”
http://bit.ly/FlipMore –Sign up here
Get Your QR Codes Today
I should probably begin by saying that I’m a self proclaimed and unapologetic Internet and technology junky. The latest technological marvel rarely escapes my grasp. The combination of screens, keyboards, mice, and other communication devices in my office draws comparison to mission control at NASA.
I love my new tablet.
And of course I never leave home without my smartphone (you’ll see where this is going soon).
But that’s enough about my devices for now. Let’s talk about my newest infatuation: QR codes.
You know what QR codes are, right? If you don’t yet, you will. And after reading this, you’ll begin to notice them everywhere.
QR codes, or quick response codes, are basically square images with black and white dots that link to a specific web page, image, song, document or anything else on the Internet; kind of like a 21st century bar code. Users scan the image using the camera and a reader on their smartphone (free apps are available on all platforms) and are taken to the target destination. It’s quick, simple and highly effective.
Here is an example of one I made recently. It references one of my favorite inspirational posters. If you already have a code reader, go ahead and scan this code:
Recording labels often put them in magazines so that readers can download a free MP3 instantly. Hard Money Bankers recently had a booth at a real estate expo. I printed out a large QR code that referenced our website and displayed it on the table. As patrons stopped by, they could scan the code and be taken directly to our home page where they can get more information, fill out an application, or simply make note of the webpage to view later.
And the best part, QR codes are unlicensed and FREE to use. Finding free QR code generators on the Internet merely requires a search using your favorite search engine. Enter the URL into the QR code generator and you’ll be given an image that you can save or print and place anywhere.I find QR codes all over the place..
Imagine the head start you could have if a potential buyer scans your QR code printed on a listing sheet and can pull up endless information, pictures, and data that you simply can’t fit on a single piece of paper. Without a QR code, your potential buyer would have to go home, sit down at their computer, remember your URL, and then get the additional information. This could be hours later and they may have seen many properties since.
You can also place QR codes on for sale signs in the front yards of your listings. Anyone driving or walking by can stop and scan the image and go directly to a video walk through of the property. It’s like having an open house 24/7. Brilliant.
Before I get too excited and blab on and on about my love for QR codes I should probably wrap this up.
Advertisers in Asia have been using QR codes for years and it looks like the technology is going to become extremely popular here too.If you get in now, you’ll be ahead of the competition..
Now go open a new tab, find a QR generator, put your website’s URL in the box, get a code and start using it. Maybe one day I’ll scan your code too.
Let me know if I can help in any way.
~Ben