How To Compare Hard Money Lenders

Download the Hard Money Decision Making Matrix: https://bit.ly/31abLI5 

How to Compare Your Loan Options Among Different Hard Money Lenders

You’re looking for hard money lenders and there’s a million hard money lenders to choose from. So how do you compare among hard money lenders?

Well, most people start with the interest rate and compare lenders using that metric only. Let me tell you, if you’re looking for a hard money loan based on price alone, you’re making a huge rookie mistake!

A guy comes to me the other day and he’s shopping for hard money lenders. During our phone conversation he interrupted me in the middle of the conversation to say, “I’ve already gotten a quote of 10% from another hard money lender.”

And then I asked him, “Your lender at 10%, what are his requirements for final loan approval?”

The guy answers, “I don’t know. “

And the I asked him, “How much is he going to loan you for the 10%?”

He replied with the same answer, “I don’t know.” This guy didn’t know anything about the loan amount or requirements to get that 10% loan. 
Not only was he wasting my time, but he was wasting his own time.

Don’t waste your time when you’re shopping for hard money lenders! If you want to find the right lender for your needs, I’m going to teach you how to compare and choose the right lender.

Using a Hard Money Decision Matrix

Write down, or type out, your biggest need for a hard money loan. And what do I mean by that?
What if you need to close in 3 days? Then your biggest need for that deal is the speed of funding.

And what if you don’t have any money to bring into the deal and you’re really low on cash? Well then your biggest need is finding a hard money lender with the lowest down payment requirement.And then what if you have bad credit and no income? Your biggest need is going to be a hard money lender that doesn’t base the loan approval on your credit or your income.

Now I want you to create what’s called a decision matrix. Look it up online. Studies have proven that if you write down all your options and have them in front of you, you can make better decisions.

That’s what I’m going to ask you do right now, create your own decision matrix. And on the left side of the chart I want you to list all your hard money lenders that you’re talking to. And then each column in the chart is going to be a factor that you’re going to use to compare your hard money lenders. There are a lot of factors that you can use to compare your hard money lenders but I’m going to talk about seven important factors.

What are the seven factors for comparing among different hard money lenders? They are.

  1. Method of valuation
  2. Speed of funding
  3. Requirements of funding
  4. Cash to close requirements
  5. Reviews about the lender
  6. Monthly payments required?
  7. Total cost of the loan

Let’s start with the first factor for comparing lenders, it is Method of Valuation.

This means, ‘how is the hard money lender valuing a property? Are they using an appraisal? And if so, what’s the cost and timeline for getting it? Is the lender using a broker’s price opinion, and if so, what’s the cost and timeline for getting it? Find out the answer to that question!. This is extremely important, as you’re going to find out shortly as we go through some of the other factors.

The second factor for comparing your lender is, the Speed of Funding.
Just because a hard money lender’s website says that they can fund in 5 to 10 business days, it doesn’t mean that they can actually do it.
And why? Because if a lender is going to require an appraisal as the method of valuation for example, there is no way that lender is going to be able to close your loan in 5 to 10 days. It takes 2 to 3 weeks to get an appraisal back in most cases.

The third factor to use to compare is, the Requirements of Your Hard Money Lender.

What are the lender’s requirements for loan approval? This is the one that is going to require the most research on your part. You need to find out ALL of the requirements of each lender and make a list for each.

Let’s say you decide to go with a lender with a low interest rate but you didn’t read all the requirements and do your research. You may eliminate all of the other hard money lenders from your list and then discover that you cannot comply with all of the requirements of the lender with the low interest rate. And then what? Unfortunately you’d be out of options and you’d be out of time!

So make sure you do your research and list out every, single requirement that each hard money lender has.

The fourth factor is, Cash to Close Requirements.

Ask yourself, ‘what is the lender requiring you to bring in as your down payment, plus any closing costs?’

Know what your cash to close requirements are, because if your biggest need is the least amount of cash to close, you may want to choose the hard money lender with the lowest cash to close requirement. For example, if you’re tight on cash then choose a lender that only requires a 10% down payment at a 12% interest rate over another lender that has an interest rate of 10.5% with a down payment of 20%.

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The fifth factor is, Hard Money Lender Reviews.

Look at the lender’s reviews. Do they have reviews? Are they good or bad? If they have no reviews, no go! Some fake lenders out there, they have no reviews. If they have no reviews, are you really going to trust that they can fund your deal when it matters? Also, watch out for loan scams in hard money. If it sounds too good to be true, it probably is!

Also, if a lender has reviews, those reviews will tell you a lot of things about lender. If you do your research and actually read the reviews, you’ll find out if a lender can really close in 5 to 10 business days like they claim on their website. Maybe you’ll read the reviews and find out it actually takes the lender 21 days or more to close rather than the 5-10 days they’ve stated on their website.

So make sure you know what the reviews are for each of these lenders that you’re looking into.

The sixth factor to compare among hard money lenders is, Monthly Payments Required?

Does the lender require monthly payments? Most hard money lenders do require monthly payments. And if they don’t, usually there’s some other factor that offsets that, such as the requirement of a larger down payment, or a requirement for a really high credit score.

And then finally, the seventh factor is, the Total Cost of the Hard Money Loan.
What is the total cost of the loan for each hard money lender that you’re talking to? For example, every hard money lender has an interest rate, loan points, and then some hard money lenders have junk fees.

So not only do you want to look at the interest rate and the points when you’re comparing your hard money lenders, but determine all of the fees that are going to be charged to you at closing and after you close on the loan.

If you don’t know what the total costs are for each of the hard money lenders that you’re comparing in your matrix, you might choose a lender because they have lower points, only to find out that they have a $1,200 underwriting fee, a $500 document preparation fee, a $150 site inspection fee, etc. And if there’s a repair escrow, some hard money lenders may charge you for each draw you take out of that repair escrow. Make sure you know all of the costs!

Because each deal is so different, a hard money lender that is good for one deal may not be the right lender for another deal. A good example is a hard money lender that funds fast, versus a lender with a low interest rate that is slower to fund. You would not want to use the lower interest rate lender on a deal that needs to fund fast because he is too slow to fund.

Create your own lenders decision matrix, determine what factors are most important to you, and then rate each of your lenders on those factors. You do this by giving each lender a number 1 to 5 rating for each of the factors.

For example, for each factor (or column) of the matrix, number 1 is the lowest score and number 5 is the highest score.

For example a lender that funds fast the fastest would have a number 5 listed under the “Speed of Funding” column, while your slowest funding lender would have a number 1 listed under the “Speed of Funding” column. Rate each lender on each factor on a scale of 1 to 5.

Then you total out each of the lenders points for each factor. The lender with the highest score is the winner.

Try using your own decision matrix when comparing among your hard money lenders and you’ll see how easy it is! If you have any questions about how to do this, please leave them in the comment section below.

3 Common Hard Money Objectives Busted

As a hard money lender, I’ve heard a lot of objections  and myths over the years regarding why some people don’t want to use hard money loans. There are also misconceptions surrounding hard money lenders, more people don’t get right.  Get ready because I’m about to debunk the top 3 myths in hard money!

What are the most common objections about borrowing hard money that I hear?

The most common objection is, “hard money is too expensive!” But what really is your most expensive money? It’s not hard money, it’s your money. That’s right. Think about that for a minute. Your money is way more expensive than hard money. Don’t believe me? Check out this video we did on this topic called, “Why Hard Money is Your Cheapest Money.”

But back to my point, hard money is NOT your most expensive money out there. Although this is the most common objection  about borrowing hard money that I hear.

What is another common hard money objectives that I hear often?

Another common objection I often hear is, “I can’t qualify for a loan because I have bad credit,” or “I have a foreclosure, or a bankruptcy,” or, “I can’t document my income.”

The truth is, YES, you can qualify for a hard money loan if you have bad credit or can’t prove your income. Hard money loans are available to people with bad credit, foreclosures. and even past bankruptcies. Yes, that’s right. And most hard money lenders don’t have an income verification requirement for loan approval either. Wait until the end of this video and I’ll explain why hard money lenders will lend to you while others won’t.

What is another common objection that I hear about using hard money?

Many people who have never gotten a hard money loan before have a misconception that hard money lenders are all loan sharks and this means they’ll surely get taken advantage of. Wrong! Not all hard money lenders are loan sharks and unethical.

So how do you determine the good lenders from the bad? Read their reviews! If they have no reviews, then find someone else who has good reviews. Good reviews, that are clearly real, are a sign that you’re dealing with an ethical hard money lender that’s not a loan shark.  But be aware of fake reviews from hard money lenders that take upfront fees in advance of giving you a loan.

If you actually read the reviews, and read more than one, you can often tell if a lender’s reviews are fake.  A lender’s reviews are everything! And also make sure to check to see if the lender is licensed or accredited by the Better Business Bureau. If not, find someone else. Always work with licensed and accredited lenders!

And now I’m getting to the part you wanted to hear.

Why will a hard money lender lend to you if no one else will?

Hard money loans are not “hard” to get, as the name could suggest. Hard money loans are loans against “hard assets.” That’s why they are called hard money loans because hard money loans are asset based loans and not based on credit or income.

Hard money loans  are easier to get than traditional loans, not harder to get! So, if you’ve never gotten a hard money loan before, what are your objections?

Please share them in the comments below if you have your own objections. If you are open to using a hard money loan, reach out to us.

I’m Corey Dutton, I’m a private money lender and one of the best you’ll find out there. I’m also licensed, accredited, and I’ve got great reviews to back it up!

Buy a home with Cash, Using Hard Money

Make Competitive Cash Offers To Buy A House

Do you want to buy a  home with cash and  make competitive offers  that mimic all cash offers with no contingencies? Does it sound too good to be true? It’s not. It’s called using a hard money loan.

These loans work more like a line of credit than a loan. In most often they don’t go on your client’s credit at all. So how does it work? Your clients get approved with us for a line of credit rather than a permanent type of loan.

Once they’re approved, they can go out and make competitive offers that mimic all cash. These loans can close in as little as five to seven days with no contingencies.

An Example of Client that Bought a House as Cash

Let me give you an example. One of the realtors that we work with a lot. Her client wanted to make a very low offer on this property. We’d approved him for a line of credit with us. And the seller accepted his offer, which was a very low offer. As I said, because he could close in five to seven days with no contingencies.

Hard Money Loans are Competitive

How competitive is that? And if you think private money loans are super high cost and won’t work for your clients. Think again alone. Except, for example a loan that’s 9.5% that your client only keeps for two months before they refinance with long term financing. Actually only cost them 1.85% in interest.

buy real estate with cash

What a low cost when you consider the high cost of losing a deal, you just can’t put a price on losing a deal.

Do you want to help your clients make cash like offers with no contingencies so you can get better deals on properties? Think about using a private money mortgage. If you don’t understand how these mortgages work, you should. Realtors that understand how these mortgages work. They make more money and close more deals.

So reach out to us and let us help you understand how to use private money mortgages to help you close more deals and faster for your clients. I’m Corey Dutton. I’m a licensed private money lender. Reach out to me.

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.

Gap Lenders

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?

Check out this video that we already did on this topic on our YouTube channel called, “How to Tell the Difference between a Bridge Loan and a Gap Loan.” That will totally help you understand the difference between a bridge loan, a hard money loan, and a gap loan. So then we already said the 90/10. Same concept.

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.

Conclusion

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!

Video Transcript
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.

Learn About Home Improvement Loans from Private Money Lenders

Hard money for home improvement

Many borrowers simply cannot comply with the requirements of banks or credit unions to get approved for home improvement loans. Whether it be a factor of too low a credit score, or not enough monthly income, many borrowers of home improvement loans are turned away by their banks and credit unions.

Some banks and credit unions scrutinize these loans more because they are 2nd position loans and pose a higher risk. And when banks and credit unions do make home improvement loans, they are often at very high interest rates.

Home improvement loans, sometimes called home equity loans, are intended to increase the value of a residential property through improvements, renovations, or repairs.

Home improvement loans can either be structured as a line of credit behind a first mortgage, or they can be a 2nd mortgage. What’s the difference between a line of credit and a 2nd mortgage?

With a line of credit, a borrower only pays interest on the amount of funds borrowed from the line of credit. For example if you take a home improvement loan as a line of credit for $100,000 and you only take out $25,000 at a time for property improvements, you only pay interest on what you’ve taken out. The lender will typically give the borrower funds in disbursements or “draws,” as the improvements are completed, rather than just give the borrower all of the funds in one lump sum.

With a 2nd mortgage loan, the lender gives the borrower the entire amount of the loan on the day it is borrowed in one lump sum, and the borrower pays interest on the entire loan amount from the day it is borrowed. For example, if you borrow $100,000 for home improvements, with a 2nd mortgage, the lender will give you the entire $100,000 loan all at once, whether or not you are using all of the funds on the home improvements right away or not.

Many people are seeking home improvement loans to utilize some of the equity that they have built up in their homes over time. Also, the strong real estate market between the years of 2010 to 2018 has helped in building that equity for many homeowners.

Because home improvement loans tend to smaller-sized loans behind a larger first mortgage, home improvement loans are higher interest rate loans. Because they are usually 2nd position loans, e.g. loans behind a first mortgage on a property, these loans pose a higher risk to a lender. Because the first mortgage lender can foreclose and wipe out any 2nd position lenders, many lenders are hesitant to make a loan in a second position behind a 1st mortgage. For this reason, home improvement loans tend to come with a much higher interest rate than a traditional first mortgage loan.

Many lenders can be incentivized to make home improvement loans if they perceive that, by making improvements to a property it will increase it’s overall value, thus improving their overall value position in the mortgage.

Banks and credit unions go in cycles in terms of lending for home improvement loans. At one time they are advertising heavily to make home improvement loans, and then suddenly, they are no longer making these loans anymore or their requirements become more stringent for qualification.

The unpredictability of the banks and credit unions draws borrowers to private money lenders for home improvement loans. Private money lenders tend to make faster lending decisions than banks and have far less documentation requirements than traditional lenders. In terms of pricing, e.g interest rates and fees, private money loans are not that much higher in cost as compared with home improvement loans from banks or credit unions.

Private money loans are growing in popularity as a source of home improvement loans. In fact, one of the largest mortgage lenders in the U.S. at the time this article is written is “Quicken Loans,” which is a private money lender. By definition, a private money lender is any lender that is not a depository institution such as a bank or credit union.

Private money lenders, often called hard money lenders, or bridge lenders are one of the best sources of home improvement loans because they base their lending decisions on the asset rather than the credit or income of the borrower. Private money lenders are also very fast to qualify borrowers and fund their loans, often in a matter of a week or so. Conversely, a bank or credit union may take three to four weeks to qualify borrowers and fund their loans.

Borrowers often seek lenders with the least requirements and the fastest speed of funding, and for this reason, many borrowers are now turning to private money lenders for home improvements loans. For more information about the approval requirements of private money lenders watch this short video, “What You Need to Get Approved for a Private Money Loan.”

Are Hard Money Loans Safe?

Video Transcription

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.

Questions like, “Are Hard Money Loan safe?” Share this video with them, like it, and if you have any questions, leave them in the comments section below.

This is Corey Dutton. I’m a private money lender. Thanks for watching!

Don’t Make This Deadly Real Estate Investing Mistake!

Transcription

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.