Private Mortgage Lenders: What Realtors Need to Know
With private mortgage lenders, also commonly called a “bridge loan” you can save your deal! You’ve worked hard to get this deal closed and you’re almost to the finish line when a buyers financing falls out. When a deal falls out, even if the realtor isn’t to blame, the realtor can feel somehow to blame. As a realtor, how can you help save a deal that you’ve worked so hard to get to the finish line?
How A Private Mortgage Lender Can Save The Day!
Here’s a recent story about a buyer’s financing that had fallen out at the last minute after the sellers had already moved out of the home. What a nightmare for Jonathan, the realtor who represented the seller!
He felt somehow responsible for the deal falling through, even though he had done everything in his power to make sure it would close and it was out of his control.
Jonathan did not know about private mortgage lender and how they are used to fund acquisitions like this in a situation where a buyer’s financing has fallen out. Jonathan called his mortgage broker friend for help, who then told him about us. Jonathan then gave our contact information to the buyer.
We were introduced to the buyer on a Tuesday and he proceeded to get approved for a loan with us that same day. Guess what? We funded the purchase on Friday, by the end of the day, and the interest rate was under 10%!
Yes, this is a true story. This is also a good example of how Jonathan, the seller’s agent, indirectly saved the deal by introducing the buyer to us. This buyer just needed to file his 2019 tax returns to qualify for a long-term, 30 year mortgage so we gave the buyer what is called a “temporary bridge loan.” This is a loan used for purchases, a loan that is for 12 months or less, and with an interest rate under 10%. But the best part about bridge loans? These loans can close in days, not weeks.
Why Realtors Need A Private Money Lender In Their Contacts
Realtors that know how a private mortgage lenders are able to close more deals and close them faster than realtors who don’t know about private money loans. These private money loans help your clients purchase properties that they quickly refinance with a long term loan, on average within 2 to 4 months. That’s why these loans act more like a line of credit than a loan. And believe it or not, bridge loans most often do not go on your client’s credit report.
Despite popular belief, private money loans are not as high cost as many realtors think. Here’s an example. Say your client gets a private money loan at 9.5% and only keeps a loan for 2 months. He pays 1.58% in interest for the two months. What a small price to pay when you consider the high cost of losing that deal for all parties involved!
A private money loan is an easy solution that can save a deal that you may have worked on for months.
Get to know us as your go to private mortgage lenders for your fall outs, or even as a back up plan. Put our contact information into your phone right now, or forward it to someone you know that could use a fast loan for a fall out. Phone: 435-565-1768. Email: [email protected] We are licensed, very reputable, and have worked with a ton of realtors and their clients to solve problems like these. You’ll never know when you may need to reach out to us so please keep our contact information handy.
What questions do you have about how to use private money loans to solve real estate lending problems for your buyers and sellers? Leave your comments below and give us a chance to discuss it with you. You may be glad you did when the next problematic financing issue comes up that could compromise your real estate deal.
How To Buy an Auction House With Hard Money
So you’re buying auction properties. You need to get a loan in advance before you start to bid. I’m going to tell you How To Buy an Auction House With Hard Money.
Step One- Auction House Details
The first step is you need to submit the property details to us for the property or properties that you’re planning to bid on.
Why? Well, you need to go into that auction with confidence, knowing that you’re already approved with a loan.
What do we need? We are going to need the property information, property address, property details, what your max bid price would be.
Step Two- Get Approved To Buy The Home From Auction With Hard Money
Once you get the approval from us, you will know what the terms are for the loan and you’ll know if that’s going to work for you.
You will know if you can actually go and bid on this property or not. Are you going to have enough money to bring in as a downpayment or in repairs to make this deal work?
Step Three- Notify Us When You Plan to go to the Foreclosure Auction
Give us a heads up the day before the auction so that we know you’re still planning on going and bidding on a particular property that we gave you a loan approval for some borrowers.
Sometimes borrowers will wait to contact us until the actual day that they’ve won the auction and sometimes we’re not ready.
So we need to get a little bit of a nudge or a little heads up the day before you’re planning on bidding.
Step four- Auction Paperwork
Send us all of the paperwork that the auction house has given you on that property. We’re going to order a title report and we’re going to set up the closing.
Step five- Close on the property
And then finally, the best step of all, step number five. Let’s close on this property. We set up an appointment with you at the title company. We’re gonna have all of the documents sent over there.
The auction house is going to have their documents sent over. We’re going to wire funds in and we’re going to close.
And you are going be an owner of a property that you bought at auction!
Hard Money Auction Financing Terms
So what are the terms you’re asking now? What are the terms for a typical loan on an auction property?
Well, the terms are going to range from a loan amount for between 80 percent to 90 percent of the purchase price.
Why not 100 percent financing? Well, typically on auction properties, we’re not able to get inside the property and take a look at it before we give you loan approval.
So that’s why I say we can lend you anywhere between 80 to 90 percent of the purchase price for the property.
In rare events, we are able to get inside the property and we’re able to take a look at it before you go and bid at auction. In that case, we may be able to give you a loan for 100 percent of the purchase price, but this is on a case by case basis.
Hard Money Interest Rates
And then what is the interest rate of these loans? You’re going expect to pay anywhere between 10 to 12 percent in interest?
Interest rate interest only, no principal payments.
And then what are the loan fees? Anywhere from one to three points or one to three percent of the loan amount as a loan fee.
And then finally, the loan term anywhere from six to 24 months.
If you’re looking at properties to buy at auction, reach out to us and get pre-approved before you go and bid.
If you have any questions, leave them in the comments section below and we’ll do our best to answer those.
How To Get 100% Financing Hard Money
[Video Transcript] Hi, I’m Corey Dutton, I’m a private money lender, and today I want to talk to you about how to get 100% financing on your real estate deals
But before we get started, I want to just give you a quick disclaimer about that, because there’s a lot of hard money lenders out there that are offering 100% financing and they’re a total scam!
Watch out for hard money scams first!
All they want to do is just take an upfront fee from you, they have no intention of ever giving you a 100% financing.
So definitely beware of scams out there, lenders that are saying that they’re going to give you 100% financing because, just remember, if it “seems too good to be true, it probably is.”
100% Hard Money Financing Explained
So let’s dive right in to what we’re talking about today, which is how to get 100% financing on your real estate deals. I mean, that’s what you really want to know, right? So let’s dig into that.
Now, you’re out there and you need money for your real estate deal. So you either have rehab funds available and they’re ready to go, and all you need is someone that will fund 100% of your purchase price of the property.
OK. So that’s one type of 100% financing where you just need the purchase price, 100% of the purchase price, you’ve got the repairs taken care of, they’re already funded, they’re set aside. OK. The other way that you want 100% financing on your real estate deal is if you’re looking for 100% of the purchase price AND 100% of the repairs.
So you don’t have the repairs set aside. That’s where you’re going to need that 100% of the purchase price and 100% of the repairs. So let’s start with when you have the repairs already accounted for, they’re taken care of, they’re set aside, whether your money, borrowed money, whatever, you’ve got the funds for the repairs and you just need a loan for 100% of the purchase price. So you can structure that as an “80/20 loan,” or a “90/10 loan.”
So what do I mean by that? Let’s start with the 80/20. When I say 80/20, I mean 80% of the purchase price and 20% of the purchase price equals 100% of the purchase price. So how do you do that?
Well, you get a hard money lender like me to loan you 80% of the purchase price as a first position loan, in a first position. And then directly behind that, you’re going to get another lender, usually a “gap lender,” maybe a partner, but someone to lend you that 20% in a second position behind that first position loan at 80% So you’ve got 80%, and 20%, that equals your 100% of the purchase price.
So “what is a gap lender?” So that gap lender is that person, or that lender, that’s going to come in a second position behind that 80% hard money lender. And a gap lender is a lender that’s going to gap that difference between that 80% that that hard money lender will do and that 20% you need to get to 100% of the purchase price. Now, what’s a gap lender?
You’ve got a hard money lender that’s going to lend you 90% of the purchase price in a first position, and then you’ve got a gap lender to lend you 10% of the purchase price in a second position behind that first position lender to get you 100% of the purchase price.
OK? So that’s how, for those of you who have your repairs already set aside, and they’re ready to go, and you need 100% of the purchase price, that’s how you’re going to get 100% financing on your deal by structuring either an 80/20 or a 90/10. Now, let’s say you’re out there and you don’t have money for the purchase and you don’t have money for the repairs.
100% of purchase AND 100% of the repairs.
So you’re looking for 100% of purchase AND 100% of the repairs. Now again, quick disclaimer, once again, a lot of lenders out there are offering that type of financing, 100% financing, they say they will fund 100% of the purchase price of 100% of the repairs. Well again, if it seems too good to be true, often it is.
But there are some hard money lenders out there that are doing that. They are going to give you 100% of the purchase price and 100% of the repairs. So good news, there are some real, legitimate lenders that aren’t just trying to scam you and promote a false loan program, they actually are offering it. But how do you get approved for that? I mean, how do you get qualified for the 100% of the purchase price and 100% of the repairs? You’re wondering, you’re scratching your head.
Well, here’s how! The lenders that will lend you 100% of purchase, 100% of repairs are going to determine your loan amount via an appraisal, or a broker’s price opinion, based on the “after repaired value” or “ARV.” Now what do they do? They get the appraisal, they get the BPO, for the after repaired value, whatever that value comes back as, they’re going to give you a percentage of that amount, and that would be your loan amount. OK, so that’s how they structure that.
After Repaired Values
Some lenders will lend you a loan amount of 65% of the after repaired value or ARV. Some lenders will lend you 70% of the ARV. And I’ve even seen some lenders out there lending 75% of the ARV. Now, are they real? Don’t know, but I’ve definitely seen it advertised.
So let’s do a quick example, this will make it a little bit easier for you to understand this concept. OK, imagine you’ve got a house you’re buying for $100,000, you’ve got $50,000 in repairs, and then, your after repaired value for this property is $230,000.
Well, good news. The appraisal, or the BPO, comes back at the $230,000. So you were right! And the lender ordered that appraisal, or the BPO, they get it back and they say, “wow, ok, we’ll lend you 65% of the after repair value.” Well, 65% of $230,000 in this example would give you a loan amount of $149,500.
Well that’s going to cover 100% of your purchase price and almost 100% of your repairs, less $500. Because remember, your purchase price was $100,000, your repairs were $50K, that gives you $150,000 that you need, to get 100% financing. And if the lender is giving you 65% of your after repair value of $230K, well, $149,500 is $500 short of that $150K. So essentially you’re getting darn near close to 100% financing in this example.
Well, hopefully that helps you understand the different types of financing that is out there for you if you’re looking for 100% financing on your deals. Now you have to determine, are you just looking for 100% of the purchase price?
And if so, how will you structure that using a hard money lender in a first position at 80%, or 90%, and a gap lender in a second position at 20%, or 10%, like we used in the example of the 80/20 and 90/10.
Or, like I said before, if you don’t have funds for the repairs and you’re looking for 100% of purchase price and 100% of repairs, at least now you’ll understand how a lender will approve you for that, approve you for that 100% financing that you’re seeking. This is Corey Dutton, I’m a private money lender. If you think that someone you know could benefit from this, please share it with them! Like and subscribe to get more content like this. And if you have any comments, please leave them in the comments section below. Thanks for watching!
Maximize Your Fix & Flip Profit With A Hard Money Loan
Transcript: I’m Corey Dutton. I’m a private money lender and today I’m going to talk to you about 3 ways to maximize your profit on a fix and flip with a hard money loan.
1. Bring in more money as a down payment
The bigger the down payment the lower the interest rate and the points. If you bring in a larger down payment you will maximize your profit on a fix and flip using a hard money loan.
2. Resell the property as fast as possible!
First of all, you need to understand how hard money interest rates work. If you have a hard money loan at 12 percent annual interest, that’s 1 percent interest per month, and you pay as you go. So if you hold the property for 4 months, you pay 4 percent in interest. If you hold the property for 6 months you pay 6 percent in interest.
The faster you sell the property and pay off the hard money loan, the more you’ll maximize your profit on a fix and flip using a hard money loan.
3. Look out for “junk fees” and hidden fees that may be charged by your hard money lender.
Besides points that you’re going to pay as part of your loan fees, there are also “junk fees” associated with some hard money loans. Make sure you have a full list of all of the junk fees that are involved in your hard money loan. Also, read your loan documents. If you miss a payment, what is the default interest? If you are late on a payment, what is the late payment charge? Make sure you understand all the fees and hidden costs in your hard money loan before you sign on the dotted line. This will help maximize your profit.
Protect Yourself From Hard Money Lending Scams (2019)
Look our for fake lenders so you don’t get ripped off!
This is Corey Dutton, I’m a private money lender and today I’m going to talk to you about warning signs to look for to spot an online hard money loan scam. So what is the most common type of loan scam that you’re going to find online.
The upfront fee scam.
This is a scam whereby a lender is going to ask you for a fee in advance of giving you the loan. The most common name that this fee scam goes under is an application fee. Remember that the loan terms that these scam artists are offering you are often too good to be true.
It’s human nature to want to believe something that is often too good to be true. That leads us as human beings to often ignore the warning signs don’t ignore the warning signs that I’m going to talk about here in this video.
The Story of Tom and Anita who lost $4,500!
I’m going to tell you a story about Tom and Anita. Tom and Anita are first time real estate investors that were out there looking for a private money loan. Tom and Anita were recently taken by a loan scam to the tune of $4,500!
They found a fake online profile someone posing as Private lender Frank. OK. And they ended up giving this perpetrator $4,500! They lost it. Obviously it was a loan scam.
So what are some of the warning signs that Tom and Anita could have looked for in this online loan scam?
So what you want to do is you want to act like a private investigator when you are looking for private money loans. You need to turn into aP.I. private investigator. You need to really do your research and due diligence on these private money lenders that are offering you money especially if the terms seem too good to be true.
The first thing that you want to do is you analyze the online profile of this individual or company that is offering you a loan. Everyone has some kind of online presence in this day and age. OK.
What kind of things could Tom and Anita have been looking for in the online profile of this private lender Frank to avoid being taken by a loan scam?
I’m going to talk about some of them here. Take a look at this example. When you click on the profile of this person you’re going to see that often if you click on their connections or friends that they don’t have any connections or friends to show. The other thing that you want to look for is the contact info for this individual. Check out this example here.
This person has an e-mail address that is a looks like it has a typo in it. And the phone number is a what’s at phone number. OK that should be a huge clue to you that this person is probably not legitimate then what you want to do is you want to read the person’s posts that they put online and look at their e-mails that they’re sending you. OK. Look check out this post.
This is a good example of a loan scam that someone’s perpetuating and you can start to identify these people online by the way that the the the phrase these posts they all sound the same.
So start to get good at recognizing these scammers by what they’re posting online and then do they have a Web site. Check this Web site out here. This is a good example of a website that has a one page Web site. They’re gathering information from you. But if you look at this there is no contact information and there’s no other pages on the Web. If they don’t have a website it’s probably a scam.
If they do have a site and it looks like this example that I’ve just shown you it looks like a teenager may have put it together last night and then posted it on the web today. It’s probably a scam. OK. Legitimate lenders have usually have a Web site OK. And then finally the photos.
Private Lender Frank scammed Tom and Anita because he stole photos off of a LinkedIn profile of a real individual. He took a bunch of photos of this person and then he created or she created a fake profile on Facebook using these photos these people are super super clever. OK. They’re taking a bunch of photos off of a real person’s profile to make it look like this person is a real person.
Know what to look for and what you can do is you can do a reverse image look up on some of these photos. Download the photos and then go to one of these image tools online. It’s called reverse image search. Look up and see if you can find this person’s photos somewhere else.
Search online to determine if they’ve stolen the photos from someone and then match it with a different name. Are you able to find this person online anywhere other than this particular Web site where you’ve found this individual. OK for example do they have a LinkedIn account? Many don’t!
Do they have a Web site?
Can you find any other information about this person online when you’re searching other than just the information that you’re finding in that one particular site. If you can’t find this individual anywhere else online or any reviews or any other information about them to do to make it to confirm that they’re actually a real person. It’s probably a scam.
How do the terms that you’ve been offered from this lender compare with the terms that you’ve got from other private moneylenders.
Tom and Anita, let’s go back to the story of them again. They were receiving terms from various private money lenders on a deal that they were looking to get funding on and that all the lenders were asking for money down and they were offering them an interest rate of 12 to 14 percent.
This private lender Frank he was asking for no money down and he was offering them an interest rate of 6 percent.
So how do the terms compare between the other lenders that you’ve talked to and this particular lender that may be a scam was offering terms that seem too good to be true.
And then finally the requirements.What are the requirements for approval?
• If there are no requirements or if you’ve been declined by multiple lenders and then all of a sudden this private money lender is popping up and they’re giving you an immediate approval.
• They’re not asking you the right questions.
• They’re not gathering the right information from you.
It’s probably a scam. You’re ready to send in money. Now how are you sending the money? And who are you sending it to?. If you’re sending them money via Western Union, via Venmo, or via zoom this is probably a scam.
It’s one thing that could have prevented Tom and Anita from getting taken by this Private Lender Frank was he gave them wiring instructions to wire him this $4,500 dollars.
But if you looked at the wire instructions the account holder name was a woman’s name. A woman that they had never heard of. That should have been the warning sign right there to say wait this isn’t right.
So does the account holder’s name on the wire instructions match the name of the individual that you’re dealing with or the company that you’re dealing with? If it doesn’t, it’s probably a scam.
Hard money lender references
And finally references, don’t rely too much on references if you ask for references and the lender gets defensive and says that they want to protect the identity of their clients.
It’s probably a scam but if they give you references take those references with a grain of salt because these people are professional scam artists.
They’ve got scripted references ready to go. And most of you won’t be able to get a hold of and if you are you’ll only be able to get a hold of one which is pretty easy to to put up in as a scripted reference so again don’t rely too much on references.
Do you have questions about anything that I’ve said here? Here the warning signs that we’ve talked about here. Leave your question in the comments section below and I will answer them as fast as I can.
Getting a Home Loan With Bad Credit
With new mortgage rules passed since the last recession, it has made it even harder to qualify for home loans for bad credit borrowers.
Private money loans are a good option for home loans for bad credit borrowers. A private money lender is simply defined as a non-bank lender.
If the term private money makes you nervous, think for a minute that the largest private money lender in the United States is ‘Quicken Loans,’ as of the date of this posting. But for bad credit borrowers, ‘Quicken Loans’ is not a good option as you must good credit and they have stringent guidelines.
A few reasons for bad credit could include, bankruptcy, unexpected medical bills, credit disputes, temporary job los, or even a difficult divorce.
Private money lenders provide alternative solutions for bad credit borrowers by offering sub prime loans, bridge loans, or portfolio loans, or a hard money loan.
Private money lenders that do make home loans for bad credit borrowers usually fall in one of the two categories:
1. Sub prime loans
2. Bridge loans.
While these loans have slightly higher interest rates than FHA or conventional loans, they tend to be faster and come with less stringent requirements for loan approval. Because each borrower has different goals, it’s important to determine those goals before pursuing one loan over another.
For borrowers with the goal of having a long-term loan option, sub prime loans are a good alternative because these loans can be held for a term of up to 30 years, with both principal and interest payments.
In fact, the most common use of a sub prime loan is for home loans for bad credit borrowers who want to keep the loan for a long term, 5 years or more.
There are sub prime lenders that will lend to borrowers with credit scores as low as 500, even those who are only one week out of bankruptcy or foreclosure. The interest rates on these loans range from 6% to 9%.
Short Term Bridge Loans
For borrowers with the goal of purchasing a property quickly and refinancing or reselling in the short-term, in under 5 years, bridge loans are the best option because they are typically 2 years or less.
To purchase a property and then sell or refinance with an FHA loan or conventional loan within 1-2 years.
Pay off revolving debt on credit report with the goal of raising the credit score of the borrower. Bridge loans are typically not credit based either, which means lenders don’t decline a borrower because of a low credit score. Because bridge loans are so short-term, they don’t appeal to borrowers who are looking for a long-term loan option. The interest rates on bridge loans are higher than sub prime loans, and range from 7% to 12%.
A borrower looking to purchase a property, or refinance a property, is quickly discovering that there aren’t a lot of options for home loans for bad credit borrowers.
Since the last recession, bank lending standards have grown more stringent and it is not easy to qualify for a mortgage loan.
Banks often look for reasons not to make loans, rather than focus on reasons why they should make loans.
Some people have bad credit, and well, bad things happen. So what are the alternatives to an FHA loan or a conventional loan?
When searching for home loans for bad credit, many people simply don’t know where to start. Hopefully this short article has helped explain how private money lenders are a good resource for bad credit borrowers.
Questions? Comments? Leave them in the comments section below. Did you find this post informative and helpful? Please share it with someone you know!
Hard Money Loans Vs Private Money Loans Explained
Hi this is Corey Dutton, I’m a private money lender and today I’m going to talk to you about, “private money explained.” Some of the questions that I’m going to answer for you today are:
What is a private money loan or what is a private money lender?
How is a private money lender different from a hard money lender?
What are the typical interest rates that are associated with a private money loan?
And what are a few ways that private money loans are used?
So what is a private money loan?
A private money loan is any non bank loan. So any loan that comes to you from a non depository institution.
Now, many people have a misconception that private money loans and hard money loans are two different things.
What’s the difference between a private money lender and a hard money lender?
Absolutely nothing!! I see it all the time, I see these videos online where these people are like, “why use a private money lender over a hard money lender?”
Again folks, a private money loan is any loan that comes from a non bank source, ok. So a hard money loan is just another type of non bank loan.
But why is it called hard money instead of private money? What’s the difference between private money and hard money? Like I said before, absolutely nothing!
They’re both non bank loans from a non depository institution. But why does hard money have that name, “hard?” It’s because a hard money loan is any loan against a hard asset.
WhatAre Typical Hard Money Interest Rates
what is the typical interest rate that is associated with a private money loan or non bank loan? The interest rates that are typically associated with private money loans are going to be a lot higher than your typical bank loan.
Usually the rates are going to range from as low as say 8% to as high as 18%. Yes I’ve seen them that high before.
And then finally, what are a few ways that people use private money loans? Well, most typically in my business, private money loans are loans against real estate.
But private money loans could be loans against any type of asset, any type of hard asset such as a car, such as gold.
Ok, those are just a few examples of hard assets that can be liquidated fairly quickly for cash. So
Hopefully I explained to you a little more about what is private money and how is it different from hard money.
The answer, the simple answer to that question is: absolutely nothing! There’s no difference!
And what you will commonly hear, you’ll hear this from other people, they’ll say something to you like, “Well you should start with private money lenders first and then if you can’t get a loan from one of them go to a hard money lender.” Well that’s wrong!!
The reason that’s wrong is because a private money lender is NOT your family and friends, and then a hard money lender is like me, an organized company with a website. No, no, no, no, no! It’s all the same, we’re all private money lenders.
So hopefully you learned something from this and that thing is: There’s no difference between private money and hard money.
If you have any questions about anything that I’ve said here, please leave them in the comments section below and I’m happy to answer you. If you found this video useful, or you liked it, please like it or share it. Thanks for watching!
Are Hard Money Loans Safe?
Because the private money lending industry is largely unregulated, people ask, “Are hard money loans safe?”
Today I’m going to try and answer that question for you and some more.
Are Hard Money Lenders predatory?
Can a hard money loan go bad and get me in trouble?
What are the loan scams out there that I should avoid?
Those are the three most common questions that go along with the bigger question which is, “Are hard money loans safe?” Here are a few red flags to look out for to determine if your Hard Money Loan is safe.
The first question you want to ask yourself when getting a hard money loan is:
“How do you know this lender?” That’s a huge question.
Did you find this lender online?
Was this lender referred to you from someone that you know?
Avoid Bait and Switch Lenders.
Now, if you want a safe Hard Money Loan, don’t get involved with a predatory or “bait and switch” type of lender.
A hard money lender should be referred to you by someone that you know that has closed a loan with them before. If you find a lender online, and you don’t know anyone that’s ever closed a loan with that lender before, that’s going to require you to do a lot more homework, a lot more due diligence on that lender.
Do your due diligence on a lender like you would do on an investment property that you want to purchase. Before the loan closing, make sure you read the loan documents that the lender is going to have you sign at the loan closing.
Read the loan documentation
For example, the promissory note, the mortgage document, or deed of trust. Whatever documents the lender is going to have you sign as part of the loan, read the documents in great detail and study those documents prior to closing on the loan and signing those documents.
What are the late fees?
What are the default clauses, or default penalties, in the note or the mortgage document?
And then, what will happen if the loan comes due and you don’t pay the loan off by the time that it’s due? Are they going to charge you a 5% “maturity penalty”?
For example, if you don’t pay the loan off by the maturity or due date? Are they charging 5%? I mean, if it’s a $100,000 dollar loan, that’s a $5,000 penalty.
So make sure you know what the loan documents say before you close on a loan with a hard money lender. And why? Because if you get yourself in a bad loan, that is certainly not a safe place to be.
What’s Your Payback Plan?
And then finally the third question that you want to ask yourself to determine if this hard money loan is safe or not is, “What’s your plan for paying that loan back?”
Do you have one? Because I’m going to tell you, a really unsafe place to be, is in a hard money loan for which you don’t have an “exit strategy,” or a way to pay it back.
Know what your exit strategy is, for the hard money loan, before you get into it.
How are you going to pay that loan back?
Is it a refinance?
Are you going to sell the property?
Are you getting liquidation of an asset over here that you’re going to use to pay this loan off? Have multiple exit strategies and know how you’re going to pay that loan back before you get into it.
Did this video answer your question about, “Are hard money loans safe?” If it did, please like this video and share it with someone you know that may have the same questions.
A lot of people, they’ve never done a hard money before, so they have a lot of these types of questions.
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This is Corey Dutton. I’m a private money lender. Thanks for watching!
Don’t Make This Deadly Real Estate Investing Mistake!
This is Corey Dutton. I’m a private money lender. And today I’m going to give you a little “Real Estate Investing 101.” So, you’re a beginner investor, a beginner real estate investor.
How many investment properties can you handle?
Don’t take on too many projects and so you will prevent yourself from crashing and burning. I see this happening all the time, new real estate investors that have a one size fits all mentality. And what do I mean by that? I mean that they look at other real estate investors doing multiple deals simultaneously and they say, “That’s what I have to do. That’s where I have to be.” And that’s not true.
One size doesn’t just fit all. Not in real estate investing. And this is the biggest mistake that I see beginning real estate investors make, which is, taking on too much and not having enough cash flow to support the multiple deals that they have going on simultaneously.
There’s a lot of real estate investor education out there that encourages you to be able to quit your day job and have multiple projects going on simultaneously so that you can’t be a full-time real estate investor. The problem with that is, again, the “one size fits all” mentality.
That may take you five years to do, where it may only take “Ed” the guy over here a year to do. So, keep that in mind. Don’t drink the kool-aid that you’re getting from these real estate investor education courses that push you to become a full-time real estate investor before you’re ready.
The Story of a beginner real estate investor who crashed and burned.
Seth is a beginning real estate investor who came to us for a hard money loan to fund his first rehab deal. We funded that rehab purchase for Seth, and we funded a few deals after that for Seth, and on every one of those deals, Seth made money. But after about the first year, Seth decided that he had to be like those other guys, he had to do it.
And so what did he do? Seth took on too many projects at once. And what happened? How did that happen?
So in this story, Seth purchased one rehab that we did a loan on, and that rehab took forever to sell. There was just something about that property, and it just kept falling out of contract. Meanwhile, while he was rehabbing and trying to sell this property, he purchased two more properties!
So Seth had three rehab projects going on, with three different hard money loans. So what happened? I mentioned to you, that the first property that Seth had purchased was not selling, it was taking forever to sell and had fallen out of contract many times.
Well, Seth’s plan, his “exit strategy” was to get the funds from that first rehab and use them to rehab the other two properties.
But when that property, that first property didn’t sell, Seth quickly found himself in a downward spiral. And why?
Because he had three hard money loans on three different properties, one of them wasn’t selling, one of them wasn’t rehabbed yet, and the other was also still sitting.
And when you have a hard money loan on a property, you’ve got a monthly payment. Not only that, but you have a cost of hazard insurance.
So, you’ve got three major expenses in these rehab projects:
• Rehabbing them,
• Making interest payments on the hard money loan that you use to purchase the property,
• Keeping insurance on these properties.
• Not to mention all the utilities and other expenses associated with maintaining these properties while you own them.
So what happened to Seth in this example?
The first house wasn’t selling, he didn’t have money to rehab the second and third project, he didn’t have money to make payments on the hard money loans, and he didn’t have money to make the insurance payments. So the houses weren’t even insured!
So, the lesson learned here with this story about Seth is, don’t take on too many projects unless you know you’re going to have the cash flow to support the rehab, the interest payments on the hard money loans, and the insurance payments at the bare very bare minimum.
So if you’re a first time real estate investor, and you’re going out looking for hard money loans to purchase your rehab properties for “fix and flip,” remember the story about Seth, don’t take on a “one size fits all” mentality and end up in that position where you do not have sufficient cash flow to support the projects that you have on hand.
How do you calculate loan to value ratio?
Loan To Value Explained
I’m Corey Dutton and I’m a lender, today I’m going to talk to you about a term that is commonly used in lending, whether you’re a borrower or a lender. The term is “loan to value” or “LTV”.
What does Loan to Value mean?
You’re going to see that term a lot when you’re looking for a loan. And what does that mean? “Loan to Value” is simply the amount of the loan divided into the value of the property.
I’m also going to tell you why that’s important to the lender and to you in a minute. But let me go into an example super quick about how to calculate that.
How to calculate LTV Ratio?
I mean, how in the world do you calculate the loan to value ratio? Let’s just say that you are getting a loan for $50,000 USD. And what’s the value of the property?
Let’s say the value of the property is $100,000 USD. How are you going to calculate the loan to value or the “LTV”?
In this case, we’re going to take the $50,000 loan amount that we’re trying to get, and we’re going to divide it into the value of $100,000. And that’s going to give us: 0.50 or 50%. So, that’s a “50% loan to value” loan. When you you’ve got a loan amount of $50,000, and the value of the property is $100,000. Now why is that important?
Most of you are just shaking your head going, “So, now what?” What does that all mean to me as a borrower? And what does that mean to a lender?
What is a good loan to value ratio?
Well, let’s do another example super quick, 50% loan to value. You have no reference point. It’s hard to tell, is that good? Is that bad? Let me give you another example. Let’s say you’re taking a $90,000 loan against that $100,000 value property.
You’re going to divide $90,000 into $100,000, and that’s going to give you: 0.90 or 90% loan to value. So, you’ve got an LTV way down here at 50%, and you’ve got an LTV or loan to value way up here at 90%.
How does LTV affect interest rates?
Why is that important and why does it matter? Well, the lower the loan to value, the lower the cost of the loan, and why? Because the lower the loan to value, the lower the perceived risk of the loan by the lender. And on the other side, the 90% loan to value loan is a higher risk to the lender.
The higher the loan to value, the higher the risk to the lender. The lower the loan to value the lower the risk to the lender. And how does that translate to you as the borrower?
The lower the risk, the lower the cost of the loan or the interest rate.
The higher the risk, the higher the cost of the loan, and the higher the interest rate.