Hard Money Lenders: The Method To Resolve And Convert Undertakings
Every one of these television programs regarding staging residences to trade, repairing houses and “turning” real estate houses as a potential investment have presented some people in the business much more concepts regarding their own undertakings. So much so that several business people who have had knowledge and reputation in the construction sector have received the encouragement they wanted to eventually take a risk and venture into some real estate investments of their own.
The thing is, especially for either first time fix and flip investors, when they have found the perfect property, the kind that is intended for the best price, the best size (the sort which has only the scope of improvements and concerns that they can more than efficiently manage), and also the right location, their budget has usually been taken.
This is when hard money lenders come into play. Because of their easy, minor trouble and paperwork requirements as opposed to the conventional procedures defined by typical lenders; hard money lenders usually are the perfect allies for this kind of ventures.
For the true business oriented person, using the services of hard money lenders on a fix and flip undertaking must not be a challenge. Indeed, it might be the right situation. For one, they’ve a similar goal planned: to earn profits. A hard money lender will deal in cold hard information about the prospective buyers of a project. If it looks worth it, they’ll naturally and quickly get on board. This is the difference between checking out a project from a truly business outlook.
Why would hard money lenders back these constructions? Basically, they stand to profit a lot from lending these fix and flip projects money, a lot more compared to the traditional lending institutions would. The trade off is,the businesses may get their credit processed and accepted quicker with such companies than through banks, if banks would entertain their applications at all.
Hard money lenders normally study the asset concerned to find out its worth; it’s usually done by a neutral vendor to prevent disputes over the findings.
As soon as the financing has been accepted, everybody will be on their way to fixing and flipping the home and turning it into the next F word: financial gain.
Hard Money Lenders: The Most Known Financial Partner By Real Estate Investors
One worry that many new real estate investors have is where to search for funds for real estate investing. And as soon as new property investors begin to find out about the various options they may have, they’re sure to discover the word “hard money lender”. So, what is a hard money lender?
A hard money lender is a private individual or small company of private lenders who are commonly locally based in the neighborhood where the real estate has been bought. Hard money lenders normally study a prospective real estate transaction when choosing if they should produce a loan on a particular property or home. Unlike common financial institutions or loan companies, they are generally less worried about a certain person’s financial track record, situation, or credit. The property is the direct guarantee for the loan.
Hard money lenders usually ask for a high cost to approve a loan, this means a couple of points higher and a big interest rate for each loan; many real estate investors do not use hard money lenders for that reason. Most hard money lenders may finish a loan (which means you could have funds in hand) within 24 hours.
If thinking about whether or not to use hard money, you should assess your numbers to make a decision if this is something that is worth it to you. If you want cash within two days and will total forty thousand dollars when all is said and done, does it really make a difference if you need to shell out $10,000 for the investment? Or is it just an aspect of the costs of doing business? You alone can figure this out.
The right way to find a hard money lender is to talk to people who are actually dealing with them. The most convenient way to achieve that is to inquire about other active investors. Find other investors by going to REIA conferences. Another fantastic manner to get other investors is to visit foreclosure deals. Find out who is bidding on which properties, bring business cards and start a chat. Ask them where they are obtaining the money and see the same person or place.
You could also check with:
Legal professionals and/or title companies (that work with closings for other buyers)
Real Estate Brokers (that do business with investors)
Bank Officers (small, local banks that are portfolio lenders, lenders who maintain the loans “in house”)
To locate a hard money lender, you need to notify all people you know that you are a real estate investor. You have to build a team and you should interact with other investors. In many cases if the revenue on the transaction are decent, finding the money shouldn’t be an issue.
Hard Money Lenders: Your Probable Mate In Your Coming Undertakings
When real estate buyers discuss about hard money lenders, they are referring to private associations or people which have more freedom to generate various lending. They could get this done, because they’re not governed by the same guidelines that commercial banks should function under. They have the ability to pre-approve applicants and get the job done efficiently. For this along with other causes, they are becoming more and more well-known, especially with rehabbers.
Even though you are an expert in investing, reconstructing and reselling a home, you will probably find that it is more troublesome to get a standard loan than it once was. Bankers, hurt by the effects from sub-prime financing made a number of years back, are being much more careful these days. You may need to look for a new solution for your next venture.
Even though hard money lending is not new, the collaboration of today’s economy and its impact on the real estate sector has developed new fascination in this manner of unconventional financing. Because of the economic struggles in some big metropolitan areas, more property owners are transferring or changing jobs. Several are just unable to keep up with those changing interest rates and balloon payments or just the escalating home taxes. Most people can experience the potential for great profits when sellers are this inspired. All we have to make that revenue is funds.
Traders could possibly get the right value on a home when, for causes like those noted above, the seller should close quickly. Bankers don’t often understand the importance for speed. They take the same span of time, generally a minimum of 1 month, to close, in spite of the details of the transaction. It takes about two weeks to get an application approved and they don’t pre-qualify loans or offer proof of income letter. In other words, they don’t allow special considerations for the rehabber. Hard money lenders specialize in assisting rehabbers.
Picking out hard money lending over a typical bank mortgage will allow you to benefit from your existing capital, purchase more homes and get them fixed right away without making cash flow hassles. One hundred percent funding of the purchase price, the improvement prices as well as the closing prices could be offered if you can find a really great purchase cost, relative to the after repair cost.
There are other reasons to choose private, rather than commercial loans. Efficient closing, a lot more manageable transaction options and no penalty for early repayment are one of them, however keeping the funds “flowing” is among the most important.
Hard Money Lenders: Loan Providers You Can Depend Upon
Hard money lending in South Carolina is just as sought after as it is in most other states, particularly with property traders. You may wonder why borrowers would likely select private hard money lenders over conventional loan corporations. You may have heard or learn that private funders impose extra or they are thought of as a last resort for mortgage.
The fact is that South Carolina hard money lenders offer several programs that the bankers cannot or will not. They accept more loans, in a timely manner. They understand the necessities of the buyer, because nearly all of them have done business real estate. Numerous of them still do. Most of them are actually known as consultants, a great choice for the rehabber or reseller. The rates they request are reasonable, generally, but to receive the perfect offer, you need to look about.
The truth is, some states have rules implemented that keep customers from irrational mortgage rates and penalties. There are a number of laws that have an effect on the business of hard money lending in South Carolina, but there’s no max on the interest rates they can impose; no max restriction on charges. As soon as you start looking, you will see that there is a broad range of expenses. As with most other issues, the most convenient method to evaluate is on the internet.
You’ll notice that South Carolina hard money lenders are aggressive. They desire your market, so they promote. One of the right techniques to choose a service would be to just look at their website. Look for the information that outline their credit program, reimbursement schemes and added services. The more up-front they’re about what they’ve to give, the more likely it is that you have discovered a trustworthy legitimate funding source.
Probably you want to refrain from any person that demands an initial repayment penalty. In the event you are reselling properties, your objective would be to have the improvements done and seek for a customer quickly. You generate losses when a property is sitting empty. In case you are conducting repair jobs, you need to look for a South Carolina hard money lender that are experts in rehab loans. They could provide finance for purchasing, closing charges and repairs, in the event the loan to value percentage is suitable.
Finally, you don’t have to restrict yourself to hard money lending in South Carolina, specifically. For many years, most private financiers only operated in small locations, so that they can drive to the property if they needed and take a look around. Right now, you can find great companies that make loans across the country. Take them into consideration. They may be the best option for financing your upcoming ventures.
Real Estate Investing Looking For Shade
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.When the banks lend, the economy is benefitted. 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. First, many states and municipalities have enacted laws that slow the foreclosure process. 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.
We expect that the economy will be helped by the release of shadow inventory.
Read more about this subject at http://www.HardMoneyBankers.com/real-estate
Don’t Get Too Confortable With HR 1526 Yet.
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 can’t borrow these types of loans.. 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. How is a retail homeowner going to get a loan on a property lying around for a year because it needs moderate to extensive rehabbing (which are the ones that sit around 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.Thats a good bill.!
Free Video: The Defaulted Paper Tour (cont’d)
Several weeks ago, the HMB gang made a group trip to Denver.
My partners had been there before and told me how beautiful it was, and I’d have to agree. But they also failed (purposefully, I’m sure) to fill me in on some very important travel tips. Here are some things I learned, and what you’ll need to know, if you ever travel to Denver:
-You have to drink 4 gallons of water a day to stay hydrated
-Running in Denver makes you’ll feel like you’re having a heart attack
-Alcohol has a much greater effect in high altitudes (let’s not get into how I know this)
While we were in Denver, we caught up with Mike Warren, a friend of ours and a note buyer himself, and asked if he would do a quick video with us on defaulted paper.
He agreed.
Because of everyone’s tight schedules, we didn’t get a chance to get too detailed, but I did get him to introduce our readers to note buying and explain the process a little bit and what he does with the paper once he gets it. It’s interesting stuff.
Here’s the video:
Mike has developed some really good note buying systems, so at the end of our time together, we asked him to help us put on a webinar about note buying. He agreed to conduct a more in-depth training webinar called “Cashing In Defaulted Paper,” where he will show you:
-How to buy notes at 20-40 cents on the dollar
-How to flip notes for big finder fees
-How to do it with no money out-of-pocket and no credit
If this topic interests you, make sure to sign up for this free, information-packed webinar. The links are below:
Thu, Apr 21, 2011 2:00 PM – 3:30 PM EDT https://www2.gotomeeting.com/register/250621563
Thu, Apr 21, 2011 8:00 PM – 9:30 PM EDT https://www2.gotomeeting.com/register/227323282
Til’ next time, Jeff
P.S. In the interests of full disclosure, Mike has an advanced fee based note-buying training system he will introduce during the webinar. You are not required to buy anything to attend the webinar! However, if you’re thinking about getting into note buying and you like what you hear, you may want to pony up some cash to get expert training. I wouldn’t recommend “experimenting” with this strategy until you get properly trained.
You’re Using QR Codes For Your Real Estate Business By Now, Right?
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.
My tablet with 3G access is the newest addition to my accessibility arsenal (I had to brag a little).
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’ve seen and scanned QR codes on business cards, fliers, bandit signs, listings distributed to potential buyers, for sale/rent signs, food labels, beer bottles, sides of buildings, t-shirts, tattoos… OK maybe not tattoos yet, but I wouldn’t be surprised.
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. Getting involved now would put you ahead of the curve (and your competitors).
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
Don’t Accpet Candy From A Stager
I know it’s tempting.
They dangle the “low cost” carrot in front of you.
They say, “Come here, Mr. Rehabber. Step into my van. I charge less than anyone else. Hire me!”
You’re on a tight budget. The electrician charged you too much and the market sagged another 2%. So to cut corners, you give in to temptation.
S-T-O-P!
STEP AWAY FROM THE CREEPY STAGER IN THE VAN!!
Cost is certainly a factor, but don’t hire any stager until you ask 7 critical questions.
In my previous post on staging (read here), I commented on how important it was in this market for rehabbers to hire a top-notch stager to properly stage their properties for resale. Staging your property correctly can result in your property being sold 80% faster and for a 7% higher price. That means a big difference to the bottom line, so it’s worth the expense if you have the right stager. But how do you find such a stager?
I asked a staging expert, Karen Lawlor, to put together a list of questions for our readers to make sure they’re not wasting money on an unqualified stager:
1. What’s your average days on market?
This speaks for itself. If he doesn’t know the answer, be worried. It means he doesn’t properly track the results of his work.
2. Do you have before and after pics of your work?
Staging is a very subjective art form. How do you know this stager has tastes similar to you or, more importantly, your buyers, unless you see and analyze the results of his or her work?
3. How many properties have you staged?
It’s tough to knock someone just because she lacks extensive experience, but how do you know she’s good without experience? Your rule of thumb should be the less experience she has, the more she should have to prove results to you, and for less money. The person with experience and proven results should ask for and get higher compensation. Like it or not, expertise costs money.
4. How many other investors do you work with?
Working with homeowners is one thing – investors another. Your stager should understand the differences. Ask the stager what services he or she has provided to other investors.
5. Can you describe your experience with building material selections?
Related to Question #4, a good stager will be able to consult with you even prior to beginning your rehab to help you select building materials, kitchen cabinets, flooring, fixtures, etc., that properly map to your budget and buying demographic.
6. What is your fee and specifically what does it cover?
Many people do not ask this question, thinking all stagers charge for the same exact service. But stagers can provide many different services for you, and you will want to know what services are being offered. For instance, does the “flat fee” cover shopping for accessories, or meeting with the kitchen people to help lay out the look and feel of the kitchen? Make certain you tell the stager exactly what you need and that the fee covers what you expect it to.
7. Where do you get your inventory?
Some stagers are able to charge less because they have storage rooms full of furniture that they use in every house. This may save money on furniture rental, but there is a down side. How much furniture could one person have? Is the good stuff already being used elsewhere? Moreover, each house you have will likely appeal to a different type of buyer. Will this “stock” furniture appeal to every type of buyer? If budget allows, you may want to have the furniture hand-picked from a rental furniture store to make certain the decorations flow properly with the neighborhood, as well as the colors and style of house.
One other very important point on hiring a stager: Make sure you get at least 3 referrals from any prospective stager and call them all. At least one referral should be a property investor. Ask the referrals about their experiences with the stager and what services they felt were most important to have.
Thanks to Karen for these great questions!
Next week Karen will appear in a low budget yet exciting video on proper staging for investors, and will share lots of free information. Don’t miss it!
For more real estate investing articles, please visit http://www.HMBCribs.com
Do Hard Money Lenders Lend On Primary Residences?
This is another hotly debated topic in the world of hard money lending and a question we are asked 20 times per day.
I will give you our answer from a hard money lender’s perspective (based on risk and underwriting). If you have questions about your State’s lending laws, please consult an Attorney.
Short answer: We do not lend on primary residences and we don’t personally know any hard money lenders that do.
Longer Answer: In some states, mainly in the West, a hard money lender doing only commercial/investor loans will still have to have the same residential mortgage lending license as a normal “consumer-based” mortgage lender. Doesn’t make much sense but that’s the case. And since they have to have the license anyway, they might as well learn how to be RESPA and TILA compliant and do some loans for primary residence homeowners. It’s another line of business (maybe not for every lender, but we’ll get to that soon) for them. If you are in the West, chances are you can find a hard money lender doing primary residence, consumer-based loans.
In many Eastern states (such as DC/MD/VA, the states where we do most of our business) there is a distinction between primary residence, consumer-based loans and commercial/investment property loans used for business purposes. Hard money lenders doing commercial/investment/business loans are not required to have the primary residence, consumer mortgage lending license. It doesn’t apply to what we do.***
So there are some legal reasons, in many states, not to do primary residence loans.
But, more importantly, there are some underwriting and business reasons not to do them either.
Here is the most important reason:
It simply isn’t our target market. We are in this business to lend to real estate professionals, people who make most or all of their income with their real estate investments. People who are serious about their business and are experienced in real estate investing. People who use our money to make more money, and are happy they did. People who come back for more loans each month. True professionals.
We are not in this business to lend money to homeowners who aren’t able to get a bank loan and might have a troubled financial situation. It’s not what we do. If other lenders do, that’s their business. It’s just not what HMB is about.
I hope that explanation clears up this issue for people.
If anyone is looking for a hard money loan for investment purposes, please apply here:
http://hardmoneybankers.com/loan-application
Thanks! I hope 2011 is starting off strong for you. Stay tuned for more.
-Chris
***There is an exception in some states near us where a person’s business could take a loan and collateralize a primary residence, but it’s rare and doesn’t come up often.