“Off Market” Real Estate Investments

For Sale by Owners Properties

While FSBO pricing has improved with the availability of Internet data sources, it still isn’t always as spot-on-the-market as the list price that a qualified real estate agent will come up with. As such, you might find some FSBO deals that are underpriced relative to other properties in the market. Dealing directly with the owner may also give you additional negotiating leverage that you can use to turn even an overpriced property into a great deal.

 

Expired Listings

When real estate that was listed expires, sometimes, the owner still wants to sell it. Furthermore, once real estate goes off the market, you can go directly to the owner and make an offer that is less than what he needed to get when he had to pay an agent. These properties can turn into very good deals just on the basis of that discount alone.

 

Know Area Lenders

While most conventionally-mortgaged homes end up going through Fannie, Freddie or Ginnie Mae’s sale process, properties that have loans held by local banks or private lenders have a much less predictable sale process. Sometimes, you can contact the lender directly while the property is in foreclosure and carve out a position for yourself before the real estate goes on the market. Getting to know the realtors that work with private lenders can also give you a leg up.

 

Contact Owners Directly

Another way to find property for sale by owner is to contact owners directly. When you do this by calling or writing and delivering the straightforward message that you are willing to buy the property, you can not only potentially avoid brokerage fees, but you can also avoid competition and maybe save money.

 

Tread Carefully

Just because a deal is off market, doesn’t mean it’s a good one. For instance, real estate for sale by owner isn’t listed because real estate agents wouldn’t list the property at the owner’s price. Deals also sometimes expire because they’re overpriced. As such, it’s always a good idea to do your own due diligence before rushing out and making an offer to make sure that the property is as good a deal as you think it is.

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Financing with Hard Money Loans

Why Use a Hard Money Loan 

If you are in a position where you cannot qualify for a traditional business loan but you need money to complete a project or for another reason, a hard money loan may be a route you can take. Hard money loans are non-traditional, alternative sources to conventional Bank financing. They are used when you can’t qualify for financing using traditional sources of financing or you need money quickly and you can’t wait for regular commercial financing.

 

What is a Hard Money Loan?

A hard money loan is a risky asset-based loan used by individuals or businesses that cannot qualify for other types of loans to finance their capital needs. If a situation comes up in which an entity needs money they can turn to hard money loans for their needs. Hard money loans are placed with private investors or mortgage companies

 

How do you Qualify for a Hard Money Loan?

Hard money loans are not solely based on the creditworthiness of the borrower. Instead, they are based on the collateral you can offer to the lender. Your credit score is usually secondary to the collateral. Usually the entire value of the collateral is not used. Instead, a loan to value ratio is calculated for the hard money loan. The loan to value ratio is a percentage of the property’s value. If the collateral you offer for the loan is not enough to secure the loan, you may have to offer up other real estate assets to secure the loan.

 

What is a Loan to Value Ratio?

A loan to value ratio for a hard money loan is calculated as the loan amount divided by the value of the property. The higher the ratio, the more difficult it is to get a loan. Usually, hard money lenders loan only about 70% of the value of the property. The loan to value ratio is a measure of risk for lenders.

Here’s an example. Let’s say that John Doe wants to take advantage of a project that costs $700,000. He needs to borrow $350,000 in order to invest in this project, but can’t get the money from any traditional lender. He approaches a hard money lender who calculates their loan to value ratio. Their ratio is $350,000/$700,000 = 50%.

 

What is the Interest Rate and Other Terms on a Hard Money Loan?

Interest rates are higher on hard money loans than they are on traditional loans. The reason is that hard money loans are riskier than traditional loans. The other terms on a hard money loan are also less favorable than on traditional loans.

Interest rates may start at around 8% and go all the way up to 12%. Borrowers also usually have to pay 2% – 5% in points. 70% loan to value is usually the maximum loan to value ratio a hard money lender will accept. A balloon payment may be required somewhere along the way. The term of the loan is usually short – as short as 1-5 years.

 

Hard Money Lenders

Hard money lenders are individuals or companies that have funds available for investment. To be a hard money lender, they have to be flexible and able to move quickly to take advantage of lending opportunities in the marketplace. They are not restricted to the rigid criteria of traditional business loans and traditional business sources.

Although you may have to go through several hard money lenders to find one that suits your needs, all you have to do is a simple search on the Internet to find hundreds of companies that engage in hard money lending. Give us a call at California Private Money Lenders 707-315-1119 or fill out our contact form, or borrowers application form, and one of our staff at California Private Money will be in touch with you promptly.

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