Learn To Be A Fix & Flip Investor

Friday, November 16, 2018

CAN YOU GET A SMALL-BUSINESS LOAN WITH BAD CREDIT?

If your credit has been damaged and you want to start a business—you can still get a small-business loan with bad credit.

The biggest reason lenders turn down small-business applications is the borrower’s credit. Banks consider bad credit anything below a 620 FICO score. Because of their past, applicants with bad credit are considered a high risk for defaulting on loans. Have no fear—there are still options out there for entrepreneurs that need a small-business loan.

HOW TO FIND A PRIVATE HARD MONEY LENDER

There are lenders out there that will work with you to get a small-business loan with bad credit. There are lenders that will provide options for borrowers with shaky credit. Typically, they require a FICO score of at least 500. And, believe it or not, there are lenders that have no minimum score requirement. These lenders will look at your business and determine if it is strong enough to be successful thereby giving them confidence that you will repay the loan.

A borrower with bad credit must realize that the lower their credit score is the bigger chance they have in having a higher APR—interest rate and fees that accrue on the loan. A borrower with a low FICO score, no collateral and a brand new business should look toward the option of business credit cards and secured personal credit cards. If you want to manage your cash flow and working capital, a line of credit will be your best bet.

Hard money lenders can help with small-business loans

If you need a small-business loan—even with poor credit, but you have collateral, a hard money lender can work with you. Hard money loans are collateral-backed loans that can give easy access to small-business owners. They are secured by real estate. Hard money lenders are less concerned with a borrower’s credit and more concerned with their hard assets. If a borrower defaults on a loan the lender can foreclose on their property.

Hard money loans offer an execution that is fast. A borrower can be approved within 24 hours and have funds in as little as 10 days. They also don’t have the regulations that traditional banks do. While a traditional bank must adhere to state and federal regulations, a hard money lender creates their own regulations. These lenders still have an underwriting criteria; they are just more lenient.

Why a hard money small-business loan may be for you

If you are an entrepreneur with a vision and you have collateral, but unfortunately your credit is damaged a hard money small-business loan may be the best option. Along with speedier approval and closing time, hard money lenders work with each borrower individually. They have more leeway with underwriting and the repayment schedule. All in all a hard money lender can be more flexible than a traditional bank loan. These private lenders are entrepreneurs themselves and want to help others with that same entrepreneurial spirit.

Dennis Dahlber Broker Ri CEO Level 4 Funding LLC Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

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 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

WHICH PRIVATE MONEY LENDER IS BEST

The definition of a private money lender is a non-institutional individual or company that loans money. This money is secured by a note and deed of property for the funding of a real estate transaction.

Private money lenders care more about the deal than they do about your credit. Unlike traditional banks, their money is secured by a hard asset (real estate). They are protected by the deed of trust—the mortgage—on your property. Private money lenders also like to see a good track record. A lender is more willing to work with a borrower that understands the game.

What does that mean for a newbie with no track record? That’s where hard money lenders come into play. A hard money lender is one type of private money lender in Arizona and is more willing to loan to a brand new investor. It benefits the new investor working with the hard money lender by doing deals and gaining experience. A hard money lender can help a new investor start their portfolio.

THE DIFFERENCES BETWEEN PRIVATE MONEY LENDERS

There are 3 types of private money lenders:

* Primary Circle— This circle is made up of friends and family, the people that are closest to you. When an investor starts out in real estate he will most likely go to his friends and family because he feels safe there; and, more than likely, if they have the money, they will invest. Unfortunately, there is a huge downside to investing within your primary circle. They may not have experience in real estate and won’t know the difference between a good and bad deal. Also, if you lose money in the deal it may easily strain a personal relationship. Make sure you are clear about the risks when proposing money lending to your primary circle—just as in any investment this is a risk.

* Secondary Circle— This circle is your professional associates and colleagues of your primary circle. You know when you are on Facebook and you see “People You May Know”? That is your secondary circle. The negative part of working within your secondary circle is there is a lesser chance they will say yes. For this circle you will need a presentation ready. They will want details on this investment—they don’t know you well enough to just trust you the way your primary circle does.

* Third Party Circle: These are people found through advertising, through networking and also, accredited investors—such as hard money lenders. This is the circle that a borrower has no personal ties. This circle will have the largest pool of possible lenders.

Types of properties that private money loans fund

Private money loans can fund a variety of properties in both residential and commercial properties, such as:

* Apartments

* Condos

* Single-family homes

* Commercial real estate

* multi-unit properties (duplexes)

How quickly you need funding, what your hard assets equate, and your network will determine which circle of private money investors will work best for you.

BECOME A HOUSE FLIPPER

You’ve heard all seen it all over television—buy a distressed house and turn it into a valuable piece of property. All the while turning quite the handsome profit. But, what exactly is house flipping and how can you become a house flipper?

HGTV makes it look so simple. You simply find a distressed house—which is relatively inexpensive, get a loan, put the work in and tah dah— you turn a huge profit— and become a house flipper In reality, becoming a house flipper—a successful one— isn’t quite that simple. As with any huge potential, it comes with risk. But, if you truly understand the steps, enjoy the process and put the time in you will be a success.

Last year, while I was at a convention, I met Steven. Steven had been selling real estate for about 15 years. He had done well, but hadn’t reached the financial goals he had set for himself. However, while working as a realtor, he had learned about home renovation. At that time he was working with investors that were flipping houses. He figured he would give it a shot. He found a perfect property and went straight to the bank. The problem was he had shaky credit. The bank turned him down. But, he was on a mission—and he refused to let the bank crush his brilliant idea.

THE BEST LENDERS FOR BAD CREDIT

After some research, he found that a hard money lender would work best in his situation. Although, he had never worked a deal that included a hard money lender, he gave it a go.

Hard money lenders offer loans for flippers on different terms than banks. These loans are specifically designed for people who don’t have great credit but need money to renovate a property. They are short-term loans that typically need to be repaid with one to three years and is secured by real estate. Some lenders will require a down payment, but there are lenders that will fund 100% of the property cost. Generally, at the end of the loan terms a borrower can refinance with a traditional loan if necessary.

So, Steven did his research. He spoke to agents and brokers in his profession. He found a hard money lender that would give him an 7.99% interest rate upon approval. Before speaking with the lender, he created a clear financial plan for his project. When he went to his meeting, he brought along the last 3 years of his tax returns, his 1099’s and his bank statements. Steven asked questions and the lender reassured while explaining the loan terms. He was approved in less than 24 hours and his funds were available the next week.

Hard money loans will benefit a house flipper

Generally, these loans have lower qualifications for approval. House flippers will typically be in competition with all cash buyers and they will need approval and funding quickly. Depending on the lender and the borrower available financing can be up to 100%, but more typically it is up to 90% of loan-to-value; and loan terms are shorter—usually between 1-3 years. It may not be as simple as HGTV’s Desert Flippers, but with the right lender it will be a very smooth process.

HOW TO FINANCE AN AIRBNB LOAN

It’s the new fad—airbnb. Hotels and motels are trending out and airbnbs are in. Don’t miss out on creating a handsome profit with a vacation home.

Sarah and Jim Nelson had finally retired. They had looked forward to traveling the world, to spoiling their grandchildren and to enjoying the rest of their lives. Unfortunately, they had both spent their professional careers as teachers. Their state pension met their living expenses; they would be able to pay their bills and live close to their pre-retirement standard of living. Their mortgage was reasonable, and they had thoughts of selling their home that had tripled in value. But, they loved their home and they didn’t want to give it up. Thoughts of starting a small business had been an option until they realized opening up a tutoring business was about the only thing, they were confident in running. After over 25 years of teaching that was the last thing, they wanted to do the rest of their lives. They wanted to have fun and feel free after years of a regimen of predictability.

EAGER TO FINANCE AN AIRBNB LOAN

As soon as school had let out on that final school day, for the Nelson’s, they took off to the wine country of Napa Valley, California. They thought they would try something new; and so they stayed at an airbnb. Their children had recently skipped the sameness of hotels and motels and begun staying at airbnbs when they traveled. So, mom and dad followed suit. It was fabulous. They spent a little more than they had previously on hotels and ended up in a 2 bedroom 2 bathroom condo in the heart of the wine country.

Sarah and Jim began discussing buying another home in Santa Barbara, where they resided. Their thoughts were on simply buying a small condo and renting it out as all these other people had done. How hard could it be? They knew they would make enough to make the mortgage—at least to start—and the sky would be the limit. As soon as they arrived home they went to the bank to discuss a second home.

Their dreams were immediately crushed. They were informed that their options for buying a house to start an airbnb were impossible. Because they already had a mortgage on their primary residence they had only two options: a second-home loan and a non-owner occupied loan. On a second-home loan they would be defaulting on the loan terms if they ever rented it out. And, a non-owner occupied loan would require a 33% down payment. Neither of these options would work for the Nelsons.

Finance an airbnb loan and reap the benefits

The Nelsons started hearing about hard money lenders. They had heard of them before, but knew nothing about the process. Hard money lenders are private money lenders. What this meant for the Nelsons was that they could take a loan out for very little down because the hard money lenders were aware of the demand for airbnbs in Santa Barbara and felt confident giving the retired couple the loan. They found a beautiful property and brought the details to the lender. Along with that the lender needed: a Note, a Deed of Trust (of their asset), the last 3 years of their tax returns, proof of income, and proof they had access to sufficient cash to preform proposed property renovations. Their lender worked with them and made it possible to turn their retirement dreams into a reality. Today the Nelsons own four airbnbs and are traveling the world, spoiling their grand children and enjoying their freedom!

Private Money Lending is All About Building Relationships

Private money lending is all about building relationships—building your network. This involves getting to know professionals in your industry and your discussing your investment with your circle of friends and family that may be looking for an investment. Another option is a hard money loan.

Your net worth is network. If you want to raise private money you have to network. If you are in real estate you need to get to know all the professionals in your industry—this can be everyone from title companies to attorneys. Referrals are key when it comes to private money. Ask your family, your neighbors, your pediatrician. You never know who is looking for an investment.

Make sure that you are prepared. You must be ready to throw your pitch at any moment, in any place, to anyone. You must be well versed on your company overview, your experience, your goals and why an investor should trust you with their money. Creating a video that you can easily share is ideal. Everyone is visual. You can talk about it or you can show it— showing it will win every time.

SELECTING YOUR PRIVATE HARD MONEY LENDER

Finding a private lender is easy—said no one ever. Although, you will be making a pitch to potential investors, remember at the end of the day it is more important that they meet your needs. It is imperative that you ask them questions:

* What is their proposed loan term

* What is their interest rate

* Will they make their loan based on the property’s current value or the ARV

* Fees they will charge

* How quickly will you receive the funds

* What experience do they have

This information will allow you to pick the most ideal lender. It is important to be on the same page as your lender.

Although, private money lenders can be anyone from your best friend to your orthopedic surgeon you can also choose a hard money lender. Why choose a hard money lender?

Depending on your situation, a hard money lender may simplify your life. Hard money is a way to borrow without using a traditional lender or getting into business with family or an acquaintance. This is ideal when a traditional lender won’t approve a loan or when a borrower needs the funds quickly.

Loans require that you show proof you can repay. Traditional lenders will base this on your credit score, your income and your debt to income ratio. The downside of a traditional loan is even with a fantastic FICO score, a large revenue stream and a low debt to income ratio— it may take months for the funds to be released to you.

Hard money lenders use a different approach. Their lending is based on assets; that means the borrower’s collateral secures the loan. This means regardless of your credit or monthly income if push comes to shove they will get their money back by taking your assets and selling them. Yes, that sounds terrifying—however, a good hard money lender will work with you—as long as you find the right lender and build a trusting relationship. It is also possible to refinance a hard money loan into a conventional loan. The hard money loan will get your approval and funds quickly. This gives you time to work on your credit and get your revenue streams in order. Hard money loans typically are from 1 to 5 years.

There are options when it comes to private lending. What is crucial is that you work with an investor that has the same vision as you and one you can trust.

THE REAL DEAL WITH HARD MONEY LENDERS

If you are anything like me when you hear “hard money lenders,”you think of a loan shark that is going to charge you an insane amount of interest and then when you don’t pay them back, they will come steal your property—but that is just in the movies.

In real life hard money lenders in Arizona are key in financing many different types of real estate. They are especially known for their integral role in financing fix-and-flip homes. Hard money lenders are non-traditional lenders—meaning they are not a bank or a credit union. Instead of securing a loan with a borrower’s credit, savings or CD’s that can be used as collateral, they secure loans with real estate. What that means is if a borrower defaults they can foreclose on their property. That can be a little scary. However, finding the right lender that will work with your personal situation can ease those fears. Hard money lenders do not want to seize your property. In fact, they want you to be successful because that will mean you will take out another loan—it’s a win-win for the lender and the borrower. They are not loan sharks. They are normal, everyday folks just like you and me.

HOW TO FIND A GOOD HARD MONEY LENDER

There can be a wide range in both loan sizes and loan costs. Different lenders have different terms. However, beware of junk fees. When you are comparing your loan proposals make sure you look at all the costs. Don’t be fooled, there are lenders out there that will offer you a 8% rate and a 3%fee but you will have so many hidden costs or junk fees that the rate you are given is misleading.

Be sure that you know who is lending you the money and that they will do what they say. Anyone can be a hard money lender; they can be an individual with cash flow or they can be a real estate finance company. Make sure you ask questions. The lender that is right for you will answer your questions and give you confidence.

What questions should I ask hard money lenders?

There are several questions for a borrower to ask. Here are a few to get you started in the right direction when speaking with a potential lender:

1) How many loans have they done in the last 12 months?

2) What details and documentation will they need from you?

3) Are they the lender or are they a broker working for a lender?

4) After funding do they sell your loan or keep it in-house?

5) If the project takes longer than originally expected can the loan be extended?

6) How many loans have they foreclosed on?

7) Do they work with 3rd party appraisers and underwriters?

8) Have they ever changed the terms on a loan before closing?

Taking out a loan is always a risk. It is of utmost importance you work with a lender that makes you feel comfortable. It is your responsibility to know your lender’s past and present. Do your homework and minimize your risks that come along with the use of other people’s money.