One evening over dinner a friend of mine and I got to playing a stupid little game where we tried to come up with some of the most ridiculously untrue statements about real estate investing. Some of the best ones were “Banks always set a fair price,” “Buyers don’t really care about the foundation” and “You can get your contracting buddies to work for beer.” But the clear winner was “I’ve always had enough cash to buy the property I want.”
The truth is, no one ALWAYS has all the liquidity they need when an opportunity arises. You’re constantly in a process of buying, rehabbing, and selling. But you don’t want to pass up an opportunity because you’ve spent most of your cash on contractors or you think you won’t get funding as a first-time real estate investor.
This business revolves around taking advantage of opportunities when they arise. You can’t just sit on your hands while hoping a house is going to sell. That’s why a lot of us look to hard money lenders, to get liquid when we need it.
Not all hard money lenders are the same, of course. Some are better and worse, and the ones who understand your needs and ones who don’t. That’s why it is really important to know your best short-term real estate financing options for flipping houses. Because this is your livelihood—it isn’t a game.
The Benefits of a Hard Money Lender
Ok, I know that no one actually likes taking out loans. In our minds, we’re all ruggedly independent and it would be ideal to never have to ask anyone for help. But that’s not realistic.
We all use a hard money lender for a variety of reasons. These are the most common advantages of hard money for short-term real estate financing.
- You’ll likely get approval. You know the house you want to buy has potential. But a bank, which focuses on credit and not potential, might not see it. They have strict considerations for approval. But, hard money lenders fund deals based on the house as their collateral in the deal, especially if you have a record of turning houses around. So, you are way more likely to get funding approval.
- You get money quickly. In real estate investing, you have to strike while the iron is hot. The market doesn’t wait, and competitors aren’t going to say “OK, you were here first, I’ll wait while you get back on your feet.” Nope. Hard money lenders can get you the cash you need, quickly.
- You get flexibility. Look, there’s some uncertainty in this business. You may have maxed out your credit cards on material. You may be paying a lot in taxes while waiting to sell. It’ll work, it is just that from the outside, your position looks a bit messy. But, hard money lenders understand the messiness of real estate investing. You may be able to get an extension on the loan or refinance it as a rental property.
Like we said, these terms aren’t universal. You have to choose the right lender. You’re in charge of making sure you make the right choice.
How To Choose the Best Short-Term Real Estate Financing Option
There are a variety of real estate investment financing available. But, only hard money is the easiest to work with when you are buying, rehabbing, and selling houses. What do you want to look for in a hard money lender? A few things.
- Rates and flexibility. There are some lenders with very high rates; others are more reasonable. There are also lenders with flexible rates depending on your track record. That’s very important.
- Industry knowledge. All hard money lenders say they know real estate, but some actually do know it really well and understand the benefit of calculated risks. They know what your business needs. And, they work with you to meet them.
- Intelligent property evaluation. Your hard-money lender is going to evaluate the property, the same as you. You want someone who sees the same things you do and won’t think that a house is going to sell for less than you believe.
So who are some of your best nationwide options?
You Can Work With These Hard Money Lenders
I’ll admit that I haven’t worked with every lender in the country, but I’ve worked with enough to know who I can trust. These are three of my favorite nationwide hard money lenders.
One of the reasons why so many real estate investors like working with RCN capital is that they only require you to have $39,000 cash in reserve. That’s really important since a lot of projects can drain your cash reserves. But, that doesn’t mean you want to pass up another potential project. RCN understands that and doesn’t require exorbitant amounts of cash on hand.
Residential Capital (ResCap)
This is an especially great company for investors looking ahead. With ResCap, you can be pre-qualified for funding on a deal within two days. That gives you the option of having funding in your pocket even before you find a deal. And, then you can confidently make an offer on properties as you find them.
Finance of America
How does this sound? A loan of 90% of the cost. A loan 75% of the after-repair value. A loan of up to $2 million. Those are all some of the possibilities from Finance of America, a company which I think really understands our industry and gets its ups and downs. I never have to do much explaining when I am working with them.
So how do you choose? How about you let them compete for you.
How to Make Hard Money Lenders Fight For You
I know that “make your lender fight for you” sounds like the name of a terrible country song, but it is a reality if you’re an independently owned and operated HomeVestors® franchisee. See, if like me, you have a HomeVestors® franchise, you have access to proprietary software, UGVilleSM, that connects you to local hard money lenders wherever you are investing across the country.
This tool isn’t just like a phone number bank. It’s a system where you plug in the information about a potential deal you’re working on and lenders respond quickly with rates, terms, amounts, and more. Everything you need to make the right decision about short-term real estate financing is at your fingertips.
Basically, this means that the lenders are competing for you. You’ll likely get lower rates than what lenders publicly advertise—and the options to choose the best one. It’s really the best of both worlds. It’s just one of the many advantages of being a HomeVestors® franchisee.
When my friend and I played our game of “ridiculous statements”, there were a lot of good ones. But “It’s good to have lenders compete for your business” would never make the cut because few truer statements have ever been uttered.
If you want access to hard money the smart way, ask whether a HomeVestors® franchise is available in your area today.
All lenders in UGVilleSM were current at time of posting. Each franchise office is independently owned and operated.