How to Make Money Using Hard Money Loans!

There are different standards and strategies that real estate investors use when evaluating properties. In order for us to get involved with a property, the following standards are judged for the worthiness of any rehab project:

“You should look for the worst house on a decent block”

1) Whether your strategy is to “flip” properties, or to hold them for their rental cash flow, it’s important to be able to draw potential buyers, or strong potential tenants, as quickly as possible. With this in mind, you should look at properties on streets that are maintained properly.
This does not limit you to higher end homes. There are many “blue collar” areas that properly maintain the condition of their homes and yards. However, a street that has poorly maintained properties or many vacancies do not lend themselves to fast turn around sales or well suited tenants.

Always remember that this is an investment. You take on a large risk, and a lot of work as a rehabber. No matter how much loving care you put into your property, you can do nothing about the condition of your neighbor’s property.

2) Make certain that there is no structural damage to the property. This could be a fatal blow to your investment!

“You make your money when you buy a property, not when you sell it!”

Purchasing Formula

There are many formulas used for the successful purchase of a rehab project. It’s important to use one.
There must always be a comfortable cushion between the purchase price and the selling price of investment property. This cushion price will help you achieve a successful investment, even if you have repair cost over-runs, or hold on to the property longer than you had anticipated. Remember, every day that the property is not sold or rented comes right off your bottom line. The interest, taxes, insurance, and utility bills compound each day. Buying the property at the right price will protect you from Murphy’s Law.

Our Funding formula:

1) Establish an after repair value for your property.

(Get “area comps” and view each one. Pick out the property that has a street that is most similar to your house’s street, and a structure that is closest to your house’s structure, then compare the square footage, amount of bedrooms and bathrooms that are all listed on the “comps.” This will help establish a real fair market value for your property).

2) Multiply the ARV x .65 (After Repaire Value)

(This will give you 65% of the ARV).

3) Establish a comprehensive and accurate list of repairs that you plan to do to the property, and estimate the costs for each repair.

(This is important. If you are knowledgeable and experienced in doing repair work, you may not need help. If you are not experienced or skilled in this, find someone who is and have them draw up a plan. Even if it costs you a little money to get them out there, this could save you thousands of dollars).

4) Subtract the cost of repairs from the 65% value of the ARV.(After Repair Value)
This should be the maximum price that you pay for the property! This is a conservative formula, and it usually works well. Remember, anyone can buy a property at close to fair market value, but with your costs and risks, you must do better!

What Is a Bridge Loan in Real Estate?

Bridge loans are loans given for a short period of time granted by a bank or an agency against the equity of the property you are selling. This loan would help you to bridge the gap between the period of realization of the sales proceeds and paying money to buy a new home. So, you can use the loan to fulfill your needs in the intermediate period when the sale of your home hasn’t given you cash to buy the new house. Thus, it can be understood as an interim kind of financial arrangement.

For example, if you are selling your home and thinking of buying a new home, but after closing your first home, you need a place to stay. The bridge loan will be given to you as a short term loan to buy your new home so you can move in even before the payment is realized on the sale of the first home. This loan acts as a bridge between the realization of sales proceeds and paying of money for a new home.

Conditions for Getting a Bridge Loan

The essential condition for getting this type of loan is that you should have a buyer for your original home or property. The buyer of your original home or property should give an undertaking by way of a written contract that he would pay for the home you have put up for sale. If you show this undertaking or written contract to a bank or an agency that specializes in giving bridge loans, the bank or the agency will gladly issue you a loan to tide over the time until you receive the final payment from the buyer. This bridge loan can then be used to buy a new home where you can live without worrying about a place to live in till you get the payment.

Bridge Loans Are Short Term Loans

A bridge Loan may be a commercial bridge loan or loan for the purchase of a house or apartment or land. Since it is granted as short term financing to fulfill the gap between the time your property is sold and you receive the money, this loan is also called by other names like gap financing or interim financing. These loans are secured against either the old home or inventory or other forms of collateral. These loans are more costly as compared to normal loans. They charge a higher rate of interest as against conventional loans, but they have an advantage as they can be granted without much formality by way of documentation.

A part of the bridge loan proceeds can be used to pay for any mortgage against your original home or real estate property so that it can then be easily sold. The other part can be used to make advance payments on your new property or home. This helps you to get good deals and secure a long term financial opportunity like a new house or new real estate property by getting short term financing. Bridge loans are a flexible form of financing, helping you achieve your goals.

Close Deals Faster and Easier With Hard Money Financing

Time and money are the most important elements in the field of real estate investing. This is why more real estate investors are looking for alternative financing options other than bank loans in order to finance their deals. One example of an alternative that investors can benefit a lot from is hard money financing.

Now how does this type of financing edge out other ways of funding properties? The answer lies between time and money – the two essential elements that all investors need in order to succeed in this business. Here is how hard money loans open opportunities groups and individuals investing in real estate:

In the Nick of Time

Traditional lending entities such as banks, mortgage unions and credit firms have a long and tedious process of approving loan applications. A loan application process usually involves determining an investor’s credit score and a property appraisal. The process usually takes up to 30 days or more to complete.

Meanwhile, hard money financing makes the approval process faster by cutting red tape in its loans. Lenders skip the process of determining a real estate investor’s credit score and goes straight to the point by using the investor’s property as collateral. Since a loan is collateral-based, the approval process only takes up to two weeks.

Money Matters

Another benefit that real estate investors enjoy when applying for loans is the amount released for each approval. People who go to lenders know that they can borrow a bigger amount of money from these lenders as compared to a bank loan. The reason behind this benefit is that a hard money loan’s released amount is based on the collateral’s after repair value or ARV. Meanwhile, a bank loan is only based on an asset’s current value.

The Perks

Hard money financing opens a lot of opportunities to people who want to invest in real estate. This type of financing allows real estate investors to close deals without any money down. It also helps individuals who fix and flip properties to fund repairs for the distressed homes that they purchase.