Monday, April 30, 2018

Tactics to negotiate a better hard money deal

You may be seeking a hard money loan and looking for the lowest possible interest rate, but there may be additional costs you could be unaware of beyond the interest rate. You will be at a disadvantage if you aren't aware of these expenses and don't try to negotiate with your lender.

Some private lenders may earn their profits by charging fees rather than collecting interest payments. In the worst case scenario, an unscrupulous lender could lure in borrowers by advertising a low-interest rate, all the while charging them exorbitant fees. Even if a lender is reputable, borrowers should be aware of any additional expenses when it comes to their loan.

Private asset based lenders are business savvy and approach each loan as a business deal. There is always room to negotiate the terms of any business deal, and the same holds true for your loan.

The most apparent expense on an asset based loan is the point fee, which is a percentage of the loan amount which is paid by the borrower up front. You should do your best to negotiate the point fee because depending on the size of your loan this cost can be considerable.

You as a borrower need to be aware of the cost of your loan in points and any other fees that may apply.

Which fees can you negotiate when it comes to hard money loans?

In the first place, there's the underwriting fee, which is the cost of a lender's due diligence. The cost of underwriting can range from 750 to 2,500 dollars depending on an individual deals complexity. In addition depending on your circumstances the cost of servicing your loan could also be a factor. Loan service fees cover the cost of recording payments and generating reports, and this price can be considerable. A lender may charge a fixed monthly payment or charge a given percentage of the loan amount annually.

In addition, be aware of any late fees, or any potential change in your interest rate if you miss a payment. You will want to keep these fees as low as possible because if you miss a payment due to financial difficulties, higher interest rates and late fees will make it harder to catch up.

The main advantage of asset based lenders over traditional banks is that they are flexible and that their is always room to negotiate the terms of your loan. If you don't try to negotiate these additional fees you may be taking on an unnecessary expense.

Take advantage of the flexibility offered by hard money lenders

Some of the fees mentioned before may or may not apply in your case. But you should try to take advantage of the flexibility offered by private lenders. If you are a borrower with considerable experience and strong collateral on hand, in most cases your private lender will work with you to negotiate any fees.

In short don't look at an attractive interest rate when shopping for a loan. If you want to get the best deal possible, know the fees that are being charged and to do your best to negotiate.

How to Evaluate a Property for Hard Money Loans

Real estate property purchases will benefit by knowing some ways to evaluate a property to best obtain hard money loans. Level 4 Funding offers the following tips to best evaluate the property you wish to get a loan for.

When entering the commercial or residential real estate market with the intent to purchase properties, fix them and then sell them for a profit, there are some things you should consider… Especially if you are looking to obtain hard money loans to fund the purchase. The better you are able to evaluate the value and prospective value of the property, the easier time you’ll have persuading lenders to fund your loan.

While unconventional or private lenders that provide investors with hard money loans are primarily interested in the collateral for borrower has to offer. In the case of real estate investors, this is typically the property that is intended to be purchased with the loan.

So it’s important to know what these lenders are going to be looking at when it comes to the property at hand. If you can pre-evaluate these things with a “lender’s eye” you may have an easier time getting approval. Level 4 Funding provides the following criteria: protective equity, which offers investors protection again payment defaults, fluctuations in the market and devaluation of the property; mortgage to value ratio, the property’s percentage of appraised value or quick-sale value – the lower the mortgage amount to the value of the property, the better; resale probability (the quicker the better); the condition of the property – which can affect how much investment will be needed to put into it to make it resalable; and location. The latter is one of the most important aspects of real estate — “location, location, location.” Consider the location of the property above all things.

There are many factors to consider, and each lender may consider some factors more important than others.

While the above are just a few of the major ones, there is a multitude of things that need to be taken into consideration when looking at an investment property. Lenders may be able to advise you as to which they consider to be most important as it related to the current market conditions.

When looking at an investment property, evaluation is a major part of the process.

With certain properties that go on the market, particularly foreclosures, time is of the essence. However, it’s more important to make a complete and unbiased evaluation of the property before jumping in “blind.” By considering all angles and factors, you can make a more education decision as to whether or not this property will be a good investment, and if you will be able to obtain hard money loans based on its current condition. Level 4 Funding can help real estate investors evaluate their property purchases to order to come to a loan agreement for the right property. Call Level 4 Funding today to see how they can help you find the investment property that will become an investment in your success.

Sunday, April 29, 2018

How to find the right hard money lender for your next project

Just because you cant secure a traditional bank loan doesn't mean you don't have other options, you may have considered a hard money lender but where do you start? What should you expect from a potential lender, and what will a lender expect from you?

A quick google search for private lenders should turn up an endless array of financing options. Because you might need a specific type of lender to match your particular project an online search can prove to be a little overwhelming. You could always try to be more exact with your search terms, trying things like ‘private rehab loans,' or ‘private construction loans.' Being specific with your online searches may help you find the lender that is right for you, but this isn't always the case.

Consider using one numerous lender databases available online to narrow down your financing options. The ideal database would allow you to aim your search for lenders based on the amount of financing you need or will enable you to search for lenders based on your specific project, (i.e., Renovation, construction, commercial, etc).

If you'd rather avoid the hassle of searching for a lender on your own, you could seek out a referral from a licensed mortgage broker. Local real estate investment groups could also put you in touch with lenders they have worked with in the past.

If you find the right lender, the question then becomes what should expect from them and how do you know you're getting the best possible deal.

What should you expect from a potential hard money lender during the application process?

Search relevant government databases to ensure your lender is licensed. Your lender should also be transparent throughout the process. Ensure that they meet their published guidelines related to fees and closing costs. You should also be wary of teaser rates offered by unscrupulous lenders.

Know that every private lender is different and will have their criteria when it comes what they expect from you as a borrower.Ask your lender to be transparent about any documentation you might need throughout the loan application process.

Know what your hard money lender expects from you to get the best deal possible

This type of loan is often used to finance rehabilitation and construction projects.If your seeking financing for renovation or construction, a lender will want to ensure that you are competent and knowledgeable about your project. In these cases, before approaching any lender, have details about the property you wish to purchase, a budget for your renovations and thorough projections about the future profitability of your project. You build up your lenders confidence and gain room to negotiate by demonstrating your understanding of a project's potential.

You need to have a detailed understanding of what your property is worth to qualify for the best possible loan. A private lender usually bases the amount of financing offered on the market value of the property you are purchasing. You won't qualify the largest possible loan if you don't have a good sense of what your property is worth.

Saturday, April 28, 2018

Benefits of Using Hard Money Lenders

Still in search for funding for your Real Estate Investment Project? There is a tremendous amount of capital available in today’s market and hard money lenders are funding their share.

From hard money lenders, bank credit cards, lines of credit, private lenders, retirement funds and traditional bank loans, real estate investors are finding the capital they need for their next big project. Hard money loans have not always had fair press, though these types of loans have been a dependable way to fund deals for decades.

The funds come from a group of individuals or a single individual who lends on their own terms. They base their decision on the collateral of the deal. With traditional lending, if your credit score falls below a certain amount then it will be impossible for you to get funded, regardless of the circumstances. Because hard money lenders set their own criteria, they can often fund projects that have been denied by traditional banks. The higher risk is associated with somewhat higher interest rates. They also work quickly to get projects funded, usually within seven days or quicker. A few of the benefits of using Hard Money Lenders are:

1) Speed--Regardless of what your offer is the speed in which you can close is more important. Conventional loans can take up to 45 days to close and many conventional lenders have been burned on deals that never closed due to the lengthy closing time. When you place your offer, a seller may take a little less knowing that the property can close in 5 to 7 days.

2) Volume – Over the course of a year, closing time within a few weeks means a few more rehab projects which will generate greater returns to the bottom line.

3) Quality--With Hard Money in your corner, you can be assured that what needs to be done will be done correctly and you do not have to cut corners to save money. You will earn a better reputation for quality work and more projects.

Bigger Projects

Knowing that you have a hard money lender behind you can help you build up to bigger projects over time. You start with a single family unit and build up to multi-family and commercial properties. Looking at various projects you may or may not want to use a hard money lender. There might be some projects that a four percent interest rate will benefit you while some rehab projects demand the speed that hard money offers. The goal, eventually, is to build enough capital that you are able to fund projects yourself without any outside funding.

With hard money lenders behind you, you have the option to look at all projects that come your way.

The fees and interest rates for hard money loans can be higher, but the speed in which you can get a project funded may be worth the extra expense. In a short-term deal, this is a small price to pay to finish a rehab and flip the property. It is worth the relationship with a hard money lender as well as other financing options for choice on a project-by-project basis.

Friday, April 27, 2018

How to Qualify for a Spec Construction Loan

First-time real estate investors could find spec construction loans a challenge to qualify for and very complicated. Get a sense for how construction loans are different from conventional mortgages and some strategies to maximize your chance of qualifying.

Construction loans differ from ordinary commercial loans in a variety of ways. They are more complicated than regular mortgages and funding is given according to a specific timetable. An initial amount of funding will be given to the borrower, and then the remainder of the loan will be dispersed on a monthly basis, or at the borrower's request. Most lenders will require verification of a borrower's expenses over the course of a construction project, which can create complications.

Construction loans are especially tricky to qualify for and are considered too risky by most banks. Most lenders have difficulty underwriting construction loans because they have to rely on the borrower's assumptions about the cost and profitability of a given project. Most lenders are especially wary of spec loans and consider them too risky because there is no guarantee of a future sale.

A spec loan is usually given on a short-term basis and is not meant to be a long-term mortgage. The aim of the borrower is to sell the property quickly after construction is completed. It is crucial that potential borrowers can demonstrate their expertise in order to qualify for a spec loan.

If you can talk up your expertise to increase your chances of qualifying for a spec construction loan

Your financial projections are what a spec lender will rely on to underwrite your loan and so it is essential to demonstrate your expertise. If a lender doesn't have faith that you will finish a project, or that you will earn a profit in the end, in most cases your construction loan won't be approved.

The best way to qualify for a spec loan is to give any potential lender confidence in your knowledge and experience when it comes to real estate. But there are additional strategies you can employ as well.

Specific tactics to help you qualify for a spec construction loan

Seek out lenders located near your construction site. A local lender will have an emotional investment in the area and will have a better understanding of your project's potential. Ensure you have enough capital up-front to make a sufficient down payment. Lenders will want an assurance that you have a sufficient stake in your construction project. The risk entailed by a spec loan usually entails a significant down payment.

Have a detailed understanding of your builders draw-process, meaning know how much your builder intends to spend at every step of your project and be sure this schedule matches the structure of your loan.

In short to qualify for a spec loan, demonstrate your expertise, find local lenders, have sufficient cash on hand and know your projects timetable. By employing these strategies, you maximize the chances of your spec loan getting approved.

Thursday, April 26, 2018

Which type of Hard money loan is right for you?

The "hard "asset being financed secures a typical hard money loan. But there are different types of asset-based loans, so how can you figure out which one is right for given your specific circumstances?

Asset- based lenders consider the value of the property which secures the loan rather than a borrowers credit score, so this type of loan can be more accessible for some borrowers.

The application process is easier than a traditional bank loan as borrowers don't need to provide extensive financial documentation in most cases.

Typical types of asset-based loans include commercial, renovation and cash-out refinance loans. Businesses rather than individuals take out commercial loans.This type of loan is short term, and it is not typically used to purchase real estate or to make long-term investments. Instead commercial loans should be used to cover short-term costs like equipment or inventory.

Borrowers use renovation loans to improve a property and then resell it for a profit. Refinance loans allow borrowers to quickly purchase a property and then later refinance to a traditional mortgage.

So what are some specific situations and how do they relate to these particular types of asset-based loans?

Evaluate your situation to determine which type of hard money loan is right for you

An asset-based loan could be a good solution if your business has sufficient collateral and you cant secure financing from a regular bank. If you want to renovate a distressed property, an asset-based lender is your best bet. Few banks are willing to issue renovation loans because raising the required capital is made difficult by government regulations. Traditional lenders also deem such projects too risky because there is a high risk of default if the borrower's project doesn't go according to plan.

A cash-out refinance loan can be ideal if you want to purchase an investment property quickly. A traditional mortgage can take several months to close. A cash-out refinance loan allows you to make the initial purchase while giving you the option to refinance to a long-term mortgage at a later date.

Whatever circumstances asset-based loans provide you with flexibility, but any lender you approach should be transparent and willing to offer advice.

Beware of hard money lenders that cant offer you specific advice about which loan is right for you

There are other types of asset-based loans of course, but a good lender will carefully consider your situation to find the option that can best meet your needs. You should look elsewhere if a lender isn't transparent or is unable to give you insight into your specific situation.

A commercial loan can be great for businesses owners with a lot of collateral, but who are ineligible for regular financing. A renovation loan can allows you to improve and resell a distressed property, and a cash out-refinance loan allows you to complete time-sensitive transactions. In short, asset-based loans are easier to qualify for, can be used to make speculative investments and can close quickly to complete time-sensitive purchases. Carefully consider your specific situation to find the type of loan to meet your financing needs.

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

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Top Situations where a hard money loan is best

A hard money loan is any loan secured by a "hard" asset (i.e., An Asset-based loan). This type of loan can be your best option especially if you need financing to construct a new facility, to renovate a distressed property or if you need to make a purchase quickly.

Asset-based loans are typically short-term loans and are more expensive than traditional financing. Because of this higher expense, it is easy to ask, who would want this type of funding in the first place?

An asset-based loan is especially useful for real-estate investors who are speculating on a quick turn around when it comes to their project. Traditional lenders avoid relying on this kind of speculation.An obvious example is a fix-and-flip project, banks avoid financing these projects because there is no guarantee of a profit and the borrower could default in the end. Traditional banks are also wary of construction loans because they have to rely on the borrowers assumptions and success isn't guaranteed.

A hard money loan can be the help you need if you need to fund a renovation or construction project

There are other reasons to consider asset-based lenders for renovation or construction projects. Typically a bank raises funds for a mortgage by reselling it to a government agency like Fannie Mae or Freddie Mac. Banks won't be able to resell any mortgage on a distressed property that falls short of FHA guidelines.Therefore a typical bank will likely deny your application if you are trying to renovate a distressed property. Asset-based lenders raise their funds from private investors and have money on hand, allowing them to see past the poor condition of any property you intend to rehabilitate.

The situation can become complicated if you finance your construction loan with an ordinary lender. Banks disperse construction loans according to a specific timetable and specific benchmarks. The lender could withhold funding if your projecting doesn't go according to plan. This scenario could be a disaster and could leave you unable to pay your contractors or to continue your project. The regulations that stifle traditional banks don't hamstring asset-based lenders so you can get increased flexibility when it comes the terms of a construction loan.

However, asset-based lenders outshine traditional banks when it comes to time-sensitive purchases.

When it comes to time-sensitive purchases, a hard money loan can be a win-win solution

A typical bank loan usually closes within 120 days, and the best investment properties don't stay on the market for long. Even the most qualified borrower won't see their application go through any faster because banks have to comply with their own guidelines and with government regulations.

Asset-based loans can close within a matter of days allowing you to complete a time-sensitive purchase. An asset-based loan gives you the flexibility to then refinance to a long-term mortgage, or to sell the property for a profit.

In short asset-based lenders are ideal for borrowers who know the potential of their project, who need flexibility or who need cash quickly to make the most of a potential investment.

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