7 Important Hard Money Loan Facts for Investors

What To Know About Private Lenders

Private lenders have been around for, well, forever: as the saying goes, lending money is the second-oldest profession. In advanced economies today, private or “hard money” loans are used by real estate investors ranging from professional renovation investors with excellent performance records to desperate last-resort borrowers with terrible credit histories.

While there remain some back-alley loan sharks around doing shady deals with desperate investors who aren’t responsible enough to borrow from anyone else, most hard money lenders are open, ethical businessmen and women with real estate acumen and extra cash to invest. There are even some formal banking institutions who engage in hard money lending.

Here are some cold, hard facts about the hard money industry to help you determine if hard money is the right money for you.


Hard Money Lender & Loan Facts

Fact #1: Hard money deals are often sought after for their quick turnaround (usually within 7-14 days to process). Any investor interested in flipping a property knows that time is of the essence and needs to have funding available sooner rather than later.


Fact #2: One way in which hard money lenders differ from more conventional lenders is in the fact that many hard money lenders tend to be local and more hands on in terms of wanting to view the property before lending money on the deals.   Hard money lenders want to get that up-close-and-personal look and feel for a property before making a decision to lend on a property.


Fact #3: Hard money loans are generally much more expensive overall than conventional loans for both the interest required on them as well as points the buyer is expected to pay on them. Generally speaking, investors seeking hard money can expect to pay anywhere from 10 to 20 percent interest and get hit with as much as eight points with some lenders in some states.


Fact #4: Hard money loans are most often sought by investors doing short term deals rather longer term deals. Most hard money lenders will lend from periods of six months up to a few years.


Fact #5: While the red tape is certainly less and the turnaround time is much faster, more hard money lenders are taking a closer look at borrowers’ experience and credit history. After the real estate crash of the late ’00s, many lenders were triply burned, as borrowers defaulted, but foreclosures were slowed to a crawl for political reasons, and values had crashed. So while ten years ago lenders were more open to lending money as long as there was sufficient equity, today they tend to be more conservative and screen out rotten-apple borrowers more thoroughly.


Fact #6: Most private lenders require borrowers to use a specific appraiser who the lender knows and trusts, who will not be swayed by the investor’s pleas for padding the value.


Fact #7: Most hard money loans are structured very similarly to balloon payments with due dates usually spread over no more than one to two years after the loan is issued.

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3 Must Haves Before Getting Your First Fix & Flip Loan

Fix & Flip is Simple But Not Always Easy


Investing in a run-down, abandoned home and fixing it up so that it can be sold for a profit is a popular way to get involved in the real estate industry. There are plenty of television shows that make it seem like a fast, easy way to make big money. While profits can certainly be made, you first should make the time and money investment to get there. Unless you have a large amount of cash lying around, you will most likely have to obtain a loan for the purchase and rehab. Here are some things you need to know before getting your first fix and flip loan.


You Still Need Cash

In the majority of cases, you won’t be able to finance 100 percent of the sales price and the cost of renovations. You’ll likely need a substantial amount of cash in order to make the deal attractive to your lender. This is true whether you’re applying for a traditional loan, or if you’re seeking a loan from a hard-money lender. A good rule of thumb is to have at least 20 percent of the amount you expect to need in capital reserves before you go to a lender. Remember, the more cash you have on hand, the lower the loan amount and fees will be.


It’s Not Always Easy

If you have less than perfect credit, and you’re new to the fix and flip world, you’re likely going to run into roadblocks along the way. Traditional mortgage lenders, banks and credit unions view these types of investments as risky, and therefore avoid them. Loans of this nature also take a great deal of time to finalize, which could mean losing the opportunity and having to start over. Hard-money lenders, on the other hand, aren’t as concerned with credit scores as they are with the potential the borrower has to complete the project and pay back the loan. They are more likely to release funds quickly, even to a new borrower, thus making the process faster and easier.


There Is Risk Involved

Even if you do thorough market research, investing in real estate is a risky business. There will never be a guarantee that your property will sell, especially in a narrow time-frame. As with any other investment, you should be prepared for the possibility of losing money on a fix and flip deal. You can mitigate some of the risk by seeking the advice of others that are successful in the business. Hard-money lenders are generally very experienced and willing to assist borrowers, unlike their traditional loan counterparts. Just keep in mind that no matter the outcome, you are responsible for repaying the loan in its entirety within the specified terms.

As a house flipper, getting a hard money loan is a viable option. If the loan to value ratio is high, give us a call at California Private Money Lenders at 707-315-1119 or fill out our Borrower’s Form or our Contact Form and one of hard money loan specialists will be in touch promptly to answer your questions,

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