By Iman Yusef-Yahya
The author has permitted the reprinting and redistribution of this article.
When Fast Cash is Needed
There will be instances during your real estate investing career when you will need up-front cash quickly on a short-term basis. Because of the short time span, it is not practical to go the conventional route which usually takes 30 to 40 days. That’s why there are hard money lenders available. Loans through a hard money lender typically will be more expensive than other financing strategies. The most important aspect of using a hard money lender is the quick availability of the cash. Sometimes you can have the money in hand within 72 hours of receiving the final docs from the title company.
The name “hard money” is due to the strict parameters that come into play when you enter into such a loan. Interest rates can run anywhere from 10% up to 18% which makes it a costly option. The cost of the money, however, can become secondary when you need cash fast to close a viable deal.
Little or No Red Tape
Perhaps you’ve located a great property to renovate quickly to turn around for profit. You may need the loan fast because you already have a buyer lined up for the house when it’s completed. The hard money loan will be in place much faster than a conventional loan and without all the red tape.
These hard money loans are usually written for a period of three months up to a year. The time depends on your needs and the lender’s criteria. Obviously the longer you hold the loan, the more expensive it becomes.
The LTV (loan to value) on a hard money loan may be lower than other loans. Usually it runs 70% or lower. This will be based on a professional appraisal of the property and calculation of the needed repairs.
Remember you will need a title policy, insurance and an appraisal which could amount to several hundred dollars. Most hard money loans will require origination points ranging from 2 points to 10 points. These closing costs must be paid up front.
Does Credit Rating Matter
Don’t make the mistake of thinking you can use a hard money loan to override your bad credit rating. While there is sufficient collateral involved, still and yet these lenders want to know they are working with someone who has a track record of paying – and paying on time. They will look for bankruptcies, foreclosures, charge offs and collections. Whether or not there will be a credit check in your case will depend on the individual hard money lender. Some investors are able to procure hard money loans without ever having their income or their credit verified. Again, it will depend on the policies of the particular lender.
If you are borrowing for the express purpose of rehabbing a property, most of these lenders will offer what is called a “draw request” form. This will be filled out to identify the repairs that have been completed – usually taken from copies of invoices from the contractors. The draws are dispersed following a satisfactory inspection.
A Last Resort
When it comes to hard money loans, they should always be used as a last resort – after you have tried other methods of raising needed capital. Never go after this type of loan unless you are completely confident that you have a great bargain property on your hands. And you must be sure of your exit strategy.
In dealing with hard money lenders make sure you are working with credible lenders. There are loan sharks out there who will purposely set you up to fail so they can take over your property. Double check credentials and ask for references.
One last tip, if your credit allows it, you might consider securing your investment property with a hard money loan for a short period of time and then refinancing it into a conventional loan.
Which ever way you choose, know that creative financing abounds for you to grab that bargain property you found. All you have to do is keep on thinking outside the box.
Using a marketing system that allows her to find some of the very best ‘below market’ deals around the country, Iman Yusef-Yahya’s system has enabled her to assist other real estate investors looking for simple, high profitable deals. Get instant access to these profitable deals at httpwww.ImanAndJoesWholesaleProperties.com
If you would like to take advantage of the market and learn how to invest in real estate and you are local to the Dallas Fort Worth area, I know a really great teacher and mentor here in Arlington Texas. Please take a look at his web site: DennisJHenson.com, Dennis has a great Mentoring and training program, I know because I am one of his former students. I learned a lot from his one on one teaching technique. – Michael Harman 817-457-7572 mchfun.business@gmail.com>
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