How to Finance Rental Properties with Hard Money

Hard money is used mostly by investors as a short term solution to fund real estate deals. Hard money is an excellent option that is used to fund fix and flips or buying rental properties until long term financing put in place. 

What is Hard Money Loan?

It is a type of financing used to finance properties for a short term period of six months or a year. Hard money lender use a different terms than the traditional lenders such as bank. Most lenders charge 14 to 16% and points for their money. Points are percentage of total loan and it can add costs quickly when a lender is charging 2-3 or even 4 points on loan.

Why Investors use Hard Money to Finance Investment Property?

The main advantage of a hard money lender is that they may loan the entire amount of money you need to complete a deal. Most lenders base the amount of loan on ARV (After Repair Value). You would have heard that they can loan 65 to 70% of AVR; which is not purchased price i.e. how much home will be worth once you fix the home.

How hard money deal is structured on investment property?

Let us take an example of how one hard money lender structures a deal. You have bought a house for $60,000 having AVR $130,000 and the lender says they will go up to 70% AVR on property. The lenders will loan up to $91,000 on the house based on the AVR. The hard money lender requires bids or estimates for repairs and they will pay out money for the repairs such as construction loans. They will pay 25% of the repairs required at closing and other payment will come it 25% increment and 4 points, but they will reduce the points paid after you do a few deals with them.

The cost to close this deal with a California hard money lender can add up rapidly. The interest on this deal will cost you $6,825 and the points will cost you $3,640 if you use the money for 6 months period. There are lenders that will charge lower interest and points, but will want a split of your profits. Hard money lenders can help you secure a property below market value when you have not other options.   

Choosing The Appropriate Hard Money Loan

Getting a bank or an institutional loan for commercial or residential investment properties are quite a hard job these days. Banks have to look for many different factors when determining whether or not to lend money and loan brokers may even take forever to establish a loan. Between the reticence of banks to loan funds and the length of time it can take for a loan broker, a residential or commercial hard money loan can be your very best option to take.

There are several different types of hard money loans out there. As a borrower or a real estate investor, you should have a sound knowledge of their types. You may choose the one which best suites your needs. We would like to share these types for your convenience.

The first is the “hard money acquisition loan”, it is used to purchase a specific property, typically for improved property or platted land. These loans are best when banks can’t get you the funds in time to complete the deal. If the property is not up to an institutional lender’s standard or there is an issue with credit or liquidity.

The second type is “value added loans”, a type of hard money loan for properties that have higher than normal vacancy rates and can be used to renovate a property to increase cash flow. This is a great loan when a property has a lot more potential income that it's currently generating.

Third one is “hard money land acquisition loans”. It is a way to buy land to improve. Banks and other lenders, including other private lenders, aren't financing many land deals at all so finding a hard money loan for property is going to be your best bet. Fourth is Bridge loan. These are a great way to get from point A to point B in a financial situation. These are short term loans that can be used to purchase a property while waiting on bank financing to come together. These loans typically close in a few weeks instead of the months it can take for a bank loan which could lose you the property.

Another type is “Construction pay off loans”. They are designed to help contractors who have finished a property but it hasn't sold yet. This loan is used to pay off the existing construction loan so the developer avoids losses and doesn't have to short sell the property.

At last we would say, as you can see, this variety of options available can help borrowers and contractors alike to leverage a situation that can't be leveraged any other way. While traditional lenders may not be able to work with you on a standard loan, a hard money loan is much easier to get and a lot quicker to get as well. If you're in need of a loan for a real estate deal, take a look at a hard money loan and the hard money loan rates. It may make the entire deal come together

Private Financing - What It is

Private financing is basically financing your business with the help of private individuals or parties, not by the traditional banks. This type of financing is generally used for personal, investment and commercial purposes. Several sources of private financing includes private and hard money lenders, investment groups and venture capitalists. Private financers are also known as “Angel investors” as they help you when no one supports you.

Private financing is one of the best source of funding in US. The California hard money lenders are well known lenders in the town. California is known as the headquarters of private lenders, many lending companies deal borrowers with professionalism. Private lenders are different from bank loans, banks usually give you loan after a long verification process. Whereas private lenders doesn’t require such verifications, you have immunity over income verification.

Private financing obtained during exchange for stock are an excellent way to get the initial operating capital needed for a startup business, but can be it will expensive in the end. While you are not likely to be paying interest in the early stages of your business, you will pay dearly should you become a success.

All the real estate investors requires capital to complete business transactions. In situations when you don’t have money for finishing business deals and you need it in short time, if you contact a bank for loan, will take considerably long time to approve. Now this is where hard money comes in handy. Since these companies are owned by private individuals so they give more attention to their customers. This lending process doesn’t require income verification form you and it doesn’t require large documentation process needed for applying a loan. Another advantage is that hard money lending is a fast process so it saves time of customers and investor.

It doesn’t matter what method you have chosen in obtaining private financing, you will find that companies are more flexible in lending criteria as compared to banks. Check out private financing companies and brokers online to see which will suit your business needs most effectively.

To conclude, if you don’t have anything in your pocket and need 100% financing to start your business or you want a loan to restart your previous business then hard money loan is a best option for you to complete your goals and dreams.

Hard Money Loans vs Bank Loans

Hard money loans are much different from traditional lenders and banks. One of the best ways to understand hard money lenders and the private investor loans they offer is compare them. The following table below shows parties, processes and terms common to one or both types of lending and compares them in relation to each other.

Party/Process/Term	Bank Loans	Hard Money Lenders
Agent	Typically sells real estate but might originate loans as well if licensed by their state and registered federally as a Mortgage Loan Originator.	Used rarely unless the sale of real estate is involved as part of the loan transaction.
Broker	Licensed as a real estate broker.  Agents freeze their license with a broker. Typically the highest licensing designation.	Same as bank loans
Loan Officer	Normally an employee of a bank, mortgage broker, mortgage banker, or large commercial lender who originates loans.  Licensing requirements may vary depending on the type of institution and their state and federal licensing.	Not a term used by hard money lenders.
Loan Broker	Same definition as Mortgage Broker.	A licensed broker specializing in brokering hard money loans.
Mortgage Broker	Works with 3rd party institutions to search conventional loans in order to meet your needs.	The term is used rarely because they are typically offering their own loan products so there is nothing to “broker.”
Mortgage Banker	Normally works along 3rd party institutions to fund loans but will primarily fund with their own money or through a pre-arranged credit line.	Loans funded with their own funds, a pool of funds they manage, or line of credit.
Hard Money Lenders	N/A	Broker who runs a specialized business dedicated to originating private money loans.  These people are often referred to as private money lenders.
Programs/Guidelines	Set as per government agencies like: Fannie Mae, Freddie Mac, FHA, VA, USDA, State Housing Agency, and some in-house “portfolio” lending programs.	Hard money loans are customized to borrower’s needs based on loan and collateral criteria such as LTV and DTI. Typically it is more flexible and faster than Conventional lenders.
Borrowers	Good credit history with easily documented income sources.	Non-traditional income and self-employed sources are accepted.  Income is analyzed differently and possible exceptions are made for past credit flaws.
Eligible Property Types	Single family homes, 2 - 4 unit and some other types of commercial property.	Other properties that fall outside of the conventional parameters like rehab loans, construction loans, bridge loans, occupied rentals used to secure startup capital for new ventures.
Vesting	Always in the individual borrower’s name.	Is more flexibility and generally permits vesting in trusts, limited partnerships,  Corporation, and LLCs.
Due Diligence	Minor to none.  Review of initial disclosures and final documents at signing with terms expected.	Extensive research of collateral and borrower’s entity is done.  Personal guarantee and Opinion Letter is generally required.
Loan Costs/Closing Costs	Normally 1 - 2% of the total loan amount.	Can be as high as 3-10%, depending on the loan amount.
Servicing	Handled by the institution who have originated the loan.  Often, one institution will sell the servicing rights to a larger firm which specializes in servicing.	Typically the private money lender who originated the loan, or a smaller servicing company.
Non- Monetary Loan Covenants	Covenants are required to be met during the loan process.  Covenants vary by lender, but typically include financial reporting, and the maintenance of various ratios like; loan to value and debt service coverage ratios.	Similar, but may be more strict, depending on lender.
Interest Rates	Rates are typically competitive between lenders, and are generally lower than private lending.  Most customers turn to private money loans not for the rate, but because the loan is otherwise unavailable.	Rates start at 8% and go up based on unique criteria of each

How to Find the Best Hard Money Lender in California

Finding the best lender in California could be a bit difficult job, but if you follow the following tips below this task will be a lot easier. The following tips will help you to find a good and the appropriate lender in your area for business.

Finding Hard Money Lender

Locate the best Lender

It is important to that you do not allow your desperation to lead you into bad decision and inappropriate deals with lenders. While you are in desire situation, it is recommended to do online search to find the best lenders that meet your needs. If you are rushed out for time, you will discover that you are paying for a loan that is nowhere near value for money and there are a lot of bad deals in the market. But not to worry; there are still some honest hard money lenders in California offering affordable rates, you still need to search for them.

A non-recourse loan

While you are doing online research, you will discover that there are two types of lenders available: the recourse loan and the non recourse loan. If you opt for the recourse loan you will be putting yourself in danger as the hard money lenders will be able to repossess your house if you are unable to repay them. Furthermore, they will also be able to take legal action against you and surely you will.

However in non-recourse loan does not allow to take legal action if you are not able to pay, but the lender is still able to reprocess your house. Non-recourse loan is favorable and you should check which loan you are opting for the before signing the contract. Do not be conned into losing more money than you owe.

While searching for hard money lenders, you will also come across the term 'points on a loan'. A point is worth 1% of the overall mortgage amount, which means one point on a $ one million is equivalent to $10,000. Usually hard money lenders will offer loans between four and eight points. So it is unlikely you will ever find a loan that is offering one point. You should always search for loans with lower points, the less you will have to pay in the long-term. It is advised to that you stay below five points otherwise you will be swamped with the costly and unforeseen fees!

Know your terms

It is crucial that you know what you are signing up for and be sure that you are aware of all the terms in contract. There will be lenders who create loan structures designed intentionally to fail, particularly those with interest-only or the adjustable rates, you have to know how to identify these. You must also be sure of the exact amount that you will be paying immediately and over the duration of the loan. If a contract is open to change, it is unlikely to be beneficial and should be avoided at all costs. If the amount is constant, there is a possibility that the price may expand quickly and ultimately become huge to repay.

For more information on hard money lenders visit http://bit.ly/CA-HML

Top Reasons to Secure Hard Money

We are living in a dynamic economics times, under conditions that make less sense to the investors. Hard money loans recently offered in the California by Private Funds Direct, are giving the opportunity to the real estate investors to free themselves of the traditional financing and focuses on what will allow them to grow. Here are the few reasons why people are flocking to the opportunity of hard money loans.

You have been hit by the recession

It is been a rough decade for the USA economy. A lot of people have emerged from the catastrophic economic recession with damaged credit. That is why Hard Money loans allows their customers what is often the means to turn their economic situation around and contribute to the rebounding of country's economy.

You are tired of red tape

Along with the previously mentioned recession that came a slew of reactionary regulations and restrictions affecting those people who are attempting to secure financing. Traditional banks are shutting out those who they have worked with in the past who may appear to be an unsafe investment. Hard money loans come from a private lender, so those regulations stay out of the trouble.

You have enough equity but are short on cash

California Hard Money lenders incentivize a different form of leverage for the borrowers. Does not matter if you are short on cash and dealing with bad credit, your financial equity makes you a safe investment in the eyes of a hard money lender. Your assets are viewed in a different, more favorable way.

It is mutually beneficial transaction

It is true that they have a high interest rate, but still hard money loans offer a degree of flexibility that is just not possible through traditional lending sources.

 For an asset-based loan in California, contact Private Funds Direct and get your finances in order.
Check out recently funded properties

Borrowing from Hard Money Lenders for Real Estate

Looking for quick loans appears to be an excellent opportunity for the real estate investment deal means that you cannot get money quick enough from the local lender. You have a limited time to close a good deal but also need a way to come up with the cash to complete transaction. You need to find hard money lender to get funds quickly.

If you are in urban area and you know that there are real estate clubs around. There doesn’t seem to be any other choice so you have to see them, keeping in mind that they may be willing to help you if it is a good one. Private investors could deliver the money within as early as five days.

 It is important when dealing with private investors is to show them that it is a good deal, doesn’t matter if you are not able to pay them back. For any reason if this happens, there has to be a considerable equity in the property, which will enable them to earn profit even if they have to take the property back from you for lack of payment. Even after that, you will be able to borrow only 65% of the property’s value after it has been fixed.

A big part of their consideration of hard money loan is the value of property, not your credit score. Usually they look at your credit score, the biggest factor is the collateral. As they are in for money, they are pretty sure that they will make a profit even if you don’t. But if you handle it in a right way, your investment in a good deal should also yield you a lot of profit back to you too. The amount of profit you will get depends on your expertise in real estate transactions, the market analysis, and of course the amount of interest you pay to the hard money lender.

It is also very important to know the difference between hard money broker and hard money lender. A hard money broker is a middle man between borrower and the lender. They usually charge a fee upfront to put you in contact with some private investors and it may not be refundable. However a private lender has their own money and they will use to help you finance the deal.

First the California hard money lender will evaluate the property before agreeing to give you a loan on that property. It is your responsibility to ensure that the amount you have asked for this is in line with the typical private investor’s expectations. Learning how to do this will come with time, and from talking with other people who frequently deal with hard money investors. Remember that they are in it for a profit too.

HML Common FAQ

The process for Getting Hard Money Loans?

Hard Money Loans provide Investors easy access to capital to purchase properties. They can fund more quickly, typically within 72 hours of receiving the final docs from the entitled Company. Hard Money is available for adequately collateralize loans on single-family residential houses and other Real Property including commercial projects. 

How do You deal with lenders?

After doing your homework, you should speak directly with a loan officer or principal of the company to learn more.Take your time on the phone, and ask questions about how they do business, what they cost, and what they need from you and from the borrower. Make sure to ask if the person or company is a lender or a broker. Do they fund with their own money? Do they have funds available now? And can the lender provide some examples of recently closed loans? Don’t forget to take notes.

If the conversation goes well, a lender may ask you what kinds of deals you have on your desk that it might be interested in. Be ready to talk about any deal you have that is seeking hard money.

What Will It Cost?

All loans will require the Title Policy, Insurance, and Appraisal. These services come with fees that can range from a few hundred to a couple of thousand dollars. Most require origination points ranging from 2 to 10 points.

How does Hard Money are Compare to a Traditional non-owner occupied investor loan?

Typically these type of loans are for quick turn around or after situations like repair. Conventional financing technique is used for your traditional rentals and long term hold scenarios. As the foreclosure market increases you will will find investors to use HML as a way to secure the property in a short period of time then refinance into Conventional finance.

Is It Safe to Use?

It is relatively easy to find HML that are merely businesses seeking a higher return on investment funds than they can get in the stock market. These lenders typically follow the regulations and laws as carefully as institutional lenders in underwriting, documentation and servicing of their loans.

Loan modifications may be easier and more creative with a hard-money lender because borrowers often can speak directly to the top decision maker. In addition, because every loan is a larger percentage of a hard-money lender’s portfolio than it is for an institutional lender, the hard-money lender has more incentive to help guide each loan to a successful conclusion.

What About the Interest Rates?

The interest rate depends upon the Lender. The rate will range from 10% interest only to 18% interest only annual interest rate payable monthly in most cases. Some Lenders will defer interest payments to payoff, benefiting investors that do not want payments during rehab.

Getting Hard Money in California

Lending Hard money in California is just as popular as it is in most other areas, particularly with property buyers. You might wonder why credit seekers would likely decide on private hard money lenders over traditional loan associations. You may often hear or read that private funders demand extra or that they are known to be a last option for funding.

The truth is that they offer many services that the banks cannot or will not. They approve more loans, in a timelier manner. They understand the needs of the investor, since most of them have invested in real estate. Many of them still do. Some of them are even considered specialists, a good choice for the rehabber or reseller. The fees that they charge are reasonable, for the most part, but to get the best deal, you should shop around.