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Category: Hard Money

Utah Mortgage Brokers: Close More Deals in 2025 with Hard Money Loans (Full Guide)

Introduction

With the national home price reaching an all time high in 2024, many real estate gurus believe prices are too high. This has made home affordability much worse. And then, national home sales hit a nearly 30 year low in 2024, which resulted in a small number of purchase loan applications. 

And then, traditional lenders tightened their lending criteria in 2024, causing delays, rejections, and cancelled real estate transactions. Many mortgage industry insiders do not expect lending to loosen up in 2025 either, given the uncertainty at the start of 2025 around inflation and long term interest rates.

The above factors have contributed to a very low number of mortgage loans being closed. If you’re a Utah mortgage broker, you’ve likely experienced the frustration first-hand. Bridge loans, a type of hard money loan, have emerged as a solution to rescue some of the transactions cancelled by the tightened lending standards. Mortgage brokers who have built strategic partnerships with reliable hard money lenders can:

  1. Offer a fast closing loan product that helps their borrowers compete with cash buyers on new purchases
  2. Transition clients to a long-term loan and make additional commission

This 2025 guide will show you how Utah mortgage brokers can leverage Utah hard money lenders to close more loans, and diversify their client base by offering additional loan options.

Why Utah Mortgage Brokers Should Partner with Utah Hard Money Lenders

1. Overcome the Cash-Buyer Hurdle

Problem: 

Some cities in Utah (like Salt Lake City, Park City, Provo, and St. George) see a large percentage of cash offers. Because traditional loans can sometimes take 45–60 days, this can put home buyers at a disadvantage 

Solution:

Hard money loans typically close within 7–14 days, similar to all cash transactions to give buyers a competitive advantage. In fact, on purchases, lower price offers can be accepted by sellers more readily. When your client can present an offer to purchase a property similar to all cash, it becomes far more attractive to the seller to accept a lower priced offer.

2. Offer More Than Just Home Loans

Not every borrower is looking for a home to buy, some borrowers are buying investment properties such as rental properties, fix and flips, and land. And what about bridge loans for home relocations or home renovations? 

The cookie-cutter DSCR loans that every mortgage company offers almost always require appraisals. However, hard money bridge loans don’t require appraisals and have way less requirements than a DSCR loan or similar non QM loan. This is why hard money bridge loans can close in under a week.

If you’re a broker without a hard money relationship, you might be missing out on a lot of different types of borrowers. Hard money loans cater to a wide variety of property types. This can expand the client pool for mortgage brokers.

3. Earn More Through Refinances

Because hard money loans are short-term, usually 3 to 12 months, that usually means your borrowers will need long-term financing to replace or “take out” their hard money loans. Enter you again as the mortgage broker.

4. Strengthen Your Referral Relationships

A mortgage broker can more confidently network with realtors and other professionals who may need fast closing loans from time to time. Many of the busiest, Utah real estate agents frequently have tight deadlines, or their clients may have problems getting financing. Happy referral sources tend to give you more word-of-mouth referrals.

Here’s How Hard Money Loans Can Help Your Borrowers

Less Requirements for Funding

DSCR and non QM loans tend to require an excessive amount of documentation. Hard money lenders have way less documentation requirements because loan approval is based on down payment or equity, the property value, and a borrower’s planned exit strategy.

Low Credit Scores Ok

Even if your borrower’s credit score doesn’t meet most standards, a hard money lender usually doesn’t have a minimum credit score.

Rehab Loans & Fix-and-Flip Financing

In areas like Provo, Salt Lake City, and in Ogden, Utah there is a lot of older housing built before the 1980s. These homes in Utah need to be updated to a modern standard, or repairs are needed. Borrowers who buy these homes to rehab and resell are often called fix and flip investors. Hard money loans can be used to purchase and rehab dated properties that are later resold for a profit.

3 Steps to Building Your List of Hard Money Lenders in Utah

Step 1: Identify and Vet Your Local Utah based Hard Money Lenders

  1. Start Local: Find hard money lenders that are based in Utah who have local knowledge. Search online for the term, “Hard money lender Utah,” or ask other colleagues for their recommendations.
  2. Check Their Track Record: Verify the lenders can actually close in the timeframe they say they can close. Do they require appraisals? If so, they may not be able to close as quickly as they claim. See if there are any online reviews about them to verify this, or talk to people that have closed loans with them before.
  3. Confirm Fees & Terms: Every Utah hard money lender has different terms, so make sure you know each lender’s interest rates, fees, and loan terms. 

Ask These Types of Questions:

  • Do you work with brokers?
  • In how many days can you close on a loan?
  • Do you require appraisals?
  • What are your typical interest rates and fees?
  • What is the most typical length of loan term? e.g. 6 months or 12 months?

Step 2: Help Your Buyers Make Competitive Offers

  1. Proof of Funds
    • Hard money lenders can provide a “proof of funds” letter showing your client’s ability to close quickly. 
  2. Remove Appraisal & Financing Contingencies
    • Hard money lenders may not require an appraisal. And in many cases, a financing contingency is not necessary in the contract either.
    • This can be a huge advantage in multiple-offer scenarios to allow your clients to make “cash-like” offers. 
  3. Transition to Long-Term Financing
    • Once the purchase is completed, you step back in and refinance the borrower into a long-term, 30 year loan.

Common Myths Around Hard Money

Myth 1: Hard Money Loans Are Too Expensive to Recommend

Reality:

  • Short-Term Loan Duration: If the borrower only keeps the loan for 3–4 months, they pay interest only for that period. For example is the annual interest rate on the hard money loan is 10%, and your client only keeps the loan for 3 months, the client will pay 2.5% – not 10%. 
  • Time Is Money: Your clients may actually save money on the purchase price of a property if they can make a cash-like offer. Or maybe the home itself has an intangible value to your clients, and closing on it quickly is a top priority. That type of benefit can often outweigh the higher cost of a hard money loan.

Myth 2: Hard Money Loans are for Bad Credit Borrowers 

Reality:

  • Plenty of high credit borrowers use hard money loans when time is of the essence, or if something minor is preventing them from qualifying for a conventional loan. 

Utah Case Studies: Hard Money Loans in the Real World

Case Study 1: Transforming a Dead Loan into Closed in Provo, Utah

  • Situation: A mortgage broker in Provo, Utah had a client with good income and excellent credit history. The client was buying a new construction home and had put down $50,000 as a deposit with the builder. However, the lender wanted the client to file another tax return before he would be able to qualify for a conventional loan. The lender declined the client at the last minute, putting the client at risk for losing his large deposit. 
  • Action: This Provo mortgage broker called a Utah hard money lender, Private Money Utah. The lender funded the purchase in 7 days. The client did not lose his earnest money and was able to move into the home upon completion.
  • Result: After filing another year of tax returns per the original lender’s requirement, the mortgage broker refinanced the client into a 30-year loan within 6 months.

Case Study 2: Saving a St. George, UT Deal at the Last Minute

  • Situation: Buyer’s conventional loan fell apart two weeks before closing. 
  • Action: The broker introduced a hard money option. The lender approved the buyer in 48 hours, and closed the next week. Both sides, buyer and seller, were relieved.
  • Result: Transaction saved. A few months later, the broker refinanced the buyer into a lower-rate, long-term loan. 

Case Study 3: A Relocation Bridge Loan in Salt Lake City

  • Situation: A family needed to move into a new home but had all their equity tied up in their current residence.
  • Action: The mortgage broker coordinated a “bridge” hard money loan, allowing the purchase before selling the old house.
  • Result: The family closed quickly on the new home, vacated the old one (making it easier to sell), then refinanced the short-term loan into a 30-year mortgage.

Your 2025 Action Plan: Grow Your Mortgage Business with Hard Money

  1. Reach Out to 2–3 Local Utah Hard Money Lenders
    • Discuss partnership terms (referral fees, closing timelines, deal types).
    • Keep their contact info handy for any deal that shows time-sensitive or nontraditional financing needs.
  2. Educate Clients from Day One
    • Present hard money as a complement to your standard mortgages—especially when speed or unique property issues arise.
    • Position yourself as a full-service broker who can solve almost any financing challenge.
  3. Secure the Refinance
    • Once a deal closes using hard money, follow up with your client on the timeline for converting to long-term financing.
    • This ensures ongoing client satisfaction and a second source of income from the same borrower.
  4. Spread the Word
    • Let local realtors, attorneys, and investors know you have a fast-close solution ready.
    • Build a reputation for getting hard or complicated deals done—boosting word-of-mouth referrals.

Call to Action (CTA)

Ready to expand your mortgage business by partnering with reliable Utah hard money lenders?

  • Call our team at 435-565-1768 to learn about forming a productive, long-term relationship.

 

 

Hard Money Guide for Utah Realtors in 2025

Introduction

In 2024, nearly a third of all homes nationwide were purchased with all cash. In Utah, cash buyers closed on approximately 20% of Utah’s homes. That remaining 80% of Utah home buyers closed with some sort of financing. 

But that 80% of closed sales that relied on financing were very hard won, I mean, ask any Utah realtor, and they will agree! Banks and other lenders really tightened up lending in 2024, using every excuse not to lend, and to even the most qualified of buyers. 

The result? Frustrating delays, endless conditions, and a long, drawn out closing process for both buyers and sellers. In 2024, transactions with financing contingencies killed a lot of deals and made many Utah realtors nearly lose their minds! But there’s a game-changing solution most realtors simply don’t know about, and it’s hard money loans.

Unlike traditional loans, hard money loans have less funding conditions and a much shorter closing timeline of 7 to 10 days instead of 45 to 60 days. For Utah realtors, hard money loans could be a way to rescue stalled out transactions or to outbid cash buyers. 

But also, hard money loans allow realtors to be able to remove the financing contingency that kills almost every deal: the sale of a buyer’s current home. 

In this 2025 Utah Realtor’s Guide to Hard Money Loans, you’ll learn:

  • How to use hard money loans to win a bidding war
  • Facts to educate buyers/sellers on these loans
  • How to remove financing contingencies to make stronger offers
  • 3 local case studies with proven results
  • A step-by-step playbook to partner with lenders

Why Utah Realtors Can’t Afford Not to Know About Hard Money Loans

1. The Cash Buyer Problem
Cash Buyer For Real Estate with Hard money

  • A large percentage of Utah listings receive cash offers.
  • Traditional loans take 45-60 days to close; cash buyers seal deals in an average of 14 days.
  • The Solution: Hard money loans allow your buyers to act like cash buyers. How?
    • Hard Money Loans remove both appraisal and financing contingencies from the offers made on homes. 
    • Example: A Salt Lake City, Utah realtor closed a $850,000 home in 16 days using a hard money loan. The due diligence period was 14 days, and it closed 2 days later. The realtor’s offer beat 4 other offers with various contingencies. How’s that for closing fast with no hassle?

2. Making Competitive Offers that Get Accepted

  • Problem: No Room for Negotiation: Why do realtors struggle submitting offers that are ‘below asking’ for their clients with contingencies such as financing?
    • No incentive for sellers to take a lower price 
    • There’s a high probability offers will be rejected
  • Solution: Hard money lenders can close in under a week, which gives sellers an incentive to accept a lower price than asking price.
    • Case Study: Tom and Janice had been looking for a home in Utah for awhile, when one suddenly came up in their price range. They had been preapproved with a local hard money lender for a bridge loan to purchase a home. When this home popped onto the market, Tom and Janice’s realtor made a “cash-like” offer with no contingencies. The realtor submitted the offer with a proof of funds letter from the local hard money lender. The seller accepted the offer and they closed on the property in 14 days.
  1. Hard Money Loans for Properties that Need Rehab
  • Utah has a lot of old, outdated housing stock: Many homebuyers don’t want to purchase a home that needs repairs or updating because of the cost involved. There are FHA loans available for purchase and renovation of outdated homes, also called 203(k) loans. A lot of realtors know about this FHA loan program, but the problem with the 203(k) loan is that it can take as long as 2 months to close! Many sellers won’t give a buyer that much time to close. Not to mention, all of the restrictions, and special conditions of the 203(k) loan program. But there are some local, Utah hard money lenders who offer rehab loans which have way less requirements as compared to the 203(k) loan, and they can close quickly, usually in 2 weeks or less. 
  • Utah Markets with Outdated Home Inventory:
    • Ogden, UT: Because the Ogden, Utah market has a lot of homes built prior to the 1980’s, there are a lot of opportunities to buy a home that needs fixing up.
    • Provo, UT: There is a lot of outdated housing stock in Provo, Utah. Many homes were built before 1970, a lot of older homes were converted into student housing, or have been purchased by young families as first time homebuyers.
    • Midvale, UT: This fast growing submarket of Salt Lake City is full of 1930-1950 bungalows and 1970’s split levels, all of which desperately needed updating. 
  • Solution: Some Utah hard money lenders will cover  up to 80% of the total project cost (purchase + rehab) to help Utah home buyers to purchase and rehab outdated Utah homes. These loans close faster (in a quarter of the time in most cases) as compared to the well-known 203(k) loans. For example, a hard money rehab loan can close in under 2 weeks, whereas the 203(k) loan can take 8 weeks. Once the renovation is completed, buyers can refinance with a long-term, 30-year mortgage.

3 Steps to Find a Utah Hard Money Lender to Work With Your Clients

Step 1: Use Local Lenders Who Understand Utah’s Market

Ask around to other realtors and mortgage brokers to see if they know any Utah-based hard money lenders. Or do a google search for “hard money lender Utah” and find a company that is based in Utah that offers hard money loans. And remember, not all hard money lenders are created equal. Ask these questions:

Question Why It Matters
“Are you local to Utah” Local expertise typically means that no appraisal will be required.
“What’s your fastest closing timeframe?” Utah-based hard money lenders can close a lot faster than out-of-state lenders. But each lender is different, so always ask this question!
“What is the average interest rate you charge and total fees as a percentage of the loan amount?” Get a ballpark of the hard money loan terms offered by each lender so you aren’t shocked when a lender quotes the interest rate or fees to your clients.

Red Flags to Avoid:

  • Out-of-state lenders who say they can close in under 10 days, but who also require appraisals for loan approval.
  • Utah hard money lenders who quote extremely high interest rates and fees, but then also demand really large size down payments. 
  • Vague answers about fees or timelines for closing.
  • No reviews from Utah borrowers.

Pro Tip: Ask other realtors and mortgage people who they use for hard money in Utah. Attend local real estate investor meetings such as the Salt Lake Real Estate Investors Association (SLREIA) monthly meeting to network with real estate professionals who are already working with hard money lenders in Utah.

Step 2: Educate Your Clients About How Hard Money Loans Work

Most buyers/sellers don’t understand how hard money loans work. Use these short scripts to guide them:

For Buyers:

“If traditional financing is not available, or if it falls through, we know lenders who can fund loans in under 7 days. Let’s discuss a backup option.”

For Sellers:

“Some buyers utilize hard money loans. These loans can close quickly, similar to all cash.”

For Hesitant Investors:

“Hard money loans let you leverage the property’s after-repair value (ARV) and can fund some of the renovations. That way you can update the property and sell for a higher price for a profit. For example, if a home’s ARV is $500,000, you could borrow up to $350,000 to fund purchase and renovations. And then, resell the home for a profit!”

Step 3: How to Submit Offers Using a Hard Money Loan on a Purchase 

Use a Tool called a “Proof of Funds Letter” with your offer

Speed is your competitive edge when submitting offers to sellers. Use a proof of funds letter to submit with your offers to show sellers that your buyer already has private financing in place. This allows your buyer to close as soon as the due diligence period ends, so no contingency for appraisal or financing are required.

How to Write an Offer on a Purchase Using Hard Money

  • Indicate in the offer you are using a hard money loan 
  • Remove Contingencies: Private money loans operate similar to all cash, this means there are no contingencies other than buyer due diligence. Most hard money lenders do not require appraisals, so there’s no appraisal deadline to write into a contract. And since the private money loan is essentially pre-approved, there is no financing contingency to write into on offer either! By removing those 2 contingencies from the offer, you have a better chance of getting an offer accepted.
  • Share compelling statement with Sellers: When submitting your offer, tell the seller’s agent or the seller the following:

“We work with lenders who can close in 14 days or less.”

Debunking 2 Common Hard Money Myths

Myth 1: “Hard Money Loans Are Too Expensive”

  • Reality: Most hard money loans are interest only loans. That means if you only keep the loan for 4 months, you only pay interest for the time you need the loan. For example, if the interest rate is 12%, and you keep the loan for 4 months, you pay 4%, not 12%. 

Myth 2: “Only Bad Credit Borrowers Use Hard Money Loans”

  • Reality: People most often use hard money loans because they have a need for speed in closing on a transaction, or for another short-term need such as a partner buy out, a divorce settlement, etc. It’s not because someone has bad credit that they seek out hard money loans!
    • Example: A husband and wife owned a commercial building jointly. As part of their divorce settlement, the husband agreed to buy out the wife from the property by giving her a specific cash out amount. He was also obligated to refinance the mortgage on the property that was in both of their names. The husband got a hard money loan to pay off the mortgage and cash out the wife, in exchange for the wife transferring full ownership of the property to the husband. Once the husband bought out his wife, he went to his local bank and applied for a long-term, commercial loan, such as a 20-year mortgage. Within 3 months, he paid off the hard money loan with a 20-year commercial mortgage.

Utah Case Studies: Realtors Who Closed More Transactions Using Hard Money

Case Study 1: From 0 to 6 Deals in 12 Months (Provo, Utah Realtor)

  • Challenge: A Provo, Utah realtor was losing listings to cash buyers due to the highly competitive market.
  • Solution: The realtor met a hard money lender who explained to her how she could close in 14 days or less, “I can close as soon as your client’s due diligence deadline ends.” This lender did not require an appraisal but instead used a Broker’s Price Opinion of Value.
  • Results:
    • This realtor won 3 bidding wars on 3 properties and got 3 other properties under contract by submitting “cash-like” offers using hard money.

Case Study 2: Rescuing a St. George Buyer With Hard Money

  • Challenge: A bank denied a St. George, Utah buyer at the last minute for a minor reason. The seller stood to lose 4 weeks in the process of closing with this buyer that suddenly lost his financing.
  • Solution: The hard money lender approved the buyer within 48 hours and closed in under a week, saving the transaction.

Case Study 3: Salt Lake City Relocation Loan 

  • Challenge: A growing family had outgrown their current home and needed to buy a larger home in the Salt Lake City, Utah market. But all of their down payment was locked up in their current home. So they first needed to sell the current home, before they could qualify to buy a larger home.
  • Solution: The realtor knew a Utah hard money lender that could see the family had a lot of equity locked up in their current home.
  • Result:
    • The hard money lender approved the family for a type of hard money loan called a “bridge loan for relocation.” The hard money lender did a loan on the new home purchase, and a loan on the current home behind the first mortgage.
    • The family purchased the new home and moved into it, vacating their current home which made it sell faster. Once their old home sold, the family paid off the balance of the hard money loan that was leftover with a 30-year mortgage at a lower interest rate.

Your 2024 Action Plan

  1. Reach out to 2-3 Local, Utah Hard Money  Lenders: Vet them using the questions above. Add their contact information to your phone. Reach out to them frequently with potential transactions to see they are a fit for hard money.
  2. Educate your Buyers and Sellers:
    • Educate your buyers and sellers on how hard money loans can facilitate various transactions to close faster, and with less hassle, as compared to traditional financing. 

CTA:
Ready to close more transactions this year? Contact us or call someone on our team to get to know us as one of your preferred, Utah hard money lenders. Reach out to us at, 435-565-1768.

Transforming a Home with a Hard Money Loan in Utah: Maria’s First Fix and Flip 

Have you ever wondered how to make a profit by turning an outdated home into a stunning, modern home? First you need the right loan, specifically a hard money loan from a hard money lender in Utah. In this post, I’ll tell you a story of a first time real estate investor, Maria, who took advantage of one of our rehab loans for fixing and flipping a property in West Jordan, Utah.

The Before: An Outdated Home in Need of Transformation

When Maria first laid eyes on this house located in West Jordan, Utah she saw potential. The house was outdated, featuring wallpaper borders, old carpet, dated fixtures, and drab bathrooms. But Maria’s contractor friend confirmed quickly that this home was structurally sound and had no major systems problems. The home just needed to be cosmetically updated, which meant replacing dated flooring, cabinets, and fixtures in an effort to modernize the home rather than making any major repairs. 

Traditional banks were not an option for Maria in this case because she was required to purchase the property in under 10 days. Because she had to complete the property purchase quickly, Maria started to look for a hard money loan. Partnering with a reputable hard money lender in Utah can make all the difference in any Utah real estate venture.


Unlike conventional loans, hard money loans offer quick approval and tend to be asset-based, focusing more on the property’s future value rather than the borrower’s credit score or income. A hard money loan allowed Maria to purchase the property swiftly and then begin the renovations.

Why Utah Is a Hotspot for Real Estate Investors

Before diving into Maria’s first fix and flip project, let’s explore why Utah has become a magnet for real estate investors, especially those interested in fix and flip projects.

1. Rapid Population Growth

Utah is one of the fastest-growing states, with a population that has been steadily increasing over the past decade. This growth fuels housing demand, making it an ideal market for real estate investors looking to buy, renovate, and resell housing.

2. Strong Economy and Employment Opportunities

The state’s robust economy, bolstered by industries like technology, healthcare, and education, attracts a steady influx of new residents. A thriving job market means more potential buyers looking for new or renovated housing.

3. Family-Friendly 

Utah has excellent schools, world class parks and recreational opportunities, and a community and family focused culture, making it attractive for those who want to raise a family. 

4. High Return on Investment (ROI) Potential

With the right property and renovations, real estate investors can achieve a significant ROI. The high demand for updated homes creates a profitable environment for fix and flip projects in Utah.

The Transformation: From Outdated to Outstanding

Armed with a hard money loan from a Utah lender, Maria embarked on an ambitious road to renovate this outdated home. 

Modernizing the Interior

Living Room Makeover

The living room underwent a dramatic transformation. Old carpeting was replaced with hardwood floors, the wallpaper borders were removed and painted in neutral tones to create a warm, inviting space. And the centerpiece became a stunning fireplace with a contemporary design, completely modernizing the main living area.

Kitchen Upgrade

The cramped, outdated kitchen was expanded and modernized with:

    • Stainless Steel Appliances
    • Quartz Countertops
    • Modern Backsplash
    • All new Cabinetry
    • Gold Hardware and Lighting

Bathroom Renovations

Bathrooms were updated with modern vanities, countertops, fixtures, tiled floors and showers, and contemporary lighting. The master bathroom received a nice makeover with a walk-in shower and a soaking tub, adding a touch of luxury.

Expanding the Living Space


Finished Basement

One of the most significant changes was the conversion of the unfinished basement into a fully functional living area. This major improvement provided:

  • Extra bedrooms
  • A new living space for a family member or the potential for a rental apartment

Hard money loans in Utah often include renovation costs, enabling Maria to undertake such extensive improvements. In this case, we did a rehab loan to provide Maria with the funds needed to renovate the home.

Enhancing the Exterior

Curb Appeal

The home’s exterior was refreshed with:

  • New paint
  • Updated windows and doors
  • Modern light fixtures

These changes significantly improved the property’s curb appeal, crucial for attracting buyers.

Outdoor Living Space

  • A new deck for entertaining
  • New landscaping

Outdoor enhancements are highly valued in Utah’s family-oriented market.

The Role of Hard Money Loans in Maria’s Success

Maria’s ability to act quickly and renovate the Utah property was made possible by her hard money rehab loan. Here’s how this loan helped with Maria’s home project success.

Quick Approval and Funding

Traditional bank loans can take weeks, sometimes months, to fund, but hard money loans can typically fund in under 1 week. The speed of closing the purchase loan allowed Maria to purchase the property by her deadline on the contract.

Flexible Requirements for Funding

With a focus on the property’s future, or after repair value rather than on borrower’s income or credit, hard money loans make it possible to fund the purchase and rehab of a property without a mountain of paperwork. This aspect of hard money loans is particularly beneficial for real estate investors who may not meet traditional loan requirements.

Watch the video on Marias Flip

Why Choose a Hard Money Lender in Utah for Your Fix and Flip Projects

Partnering with a local hard money lender in Utah offers several advantages:

Expertise in the Utah Market

Local lenders understand the nuances of the Utah real estate market, including the unique characteristics of the suburb where this property is located in West Jordan, Utah.

Strong Professional Networks

Local lenders often have connections with reliable real estate agents, contractors, home stagers, accountants, insurance providers and other professionals who can support the success of a Utah real estate investor.

The Numbers in a Fix and Flip

Here are the major numbers to factor into a fix and flip real estate project:

Financial Breakdown:

    • Purchase Price
    • Renovation Costs
    • Realtor Commissions on the Resale
    • Interest and Fees on the Hard Money Loan
  • Insurance, property taxes, utilities 
  • Net Profit: the final return on investment after repaying the loan and covering all expenses.

Utah’s Ongoing Appeal for Real Estate Investors

Maria’s real estate project is just one example of the opportunities available in Utah for real estate investing. The state’s growth trajectory and demand for updated homes make it a promising location for real estate investment.

Tips for Investors

  • Market Research: Stay informed about local trends and property values.
  • Build a Reliable Team: Collaborate with trusted professionals that know their stuff!
  • Get Fast Funding: Opt for hard money lenders in Utah to ensure quick funding.
  • Focus on High-ROI Renovations: Prioritize improvements that will most impact the future property value. Don’t spend money on things that won’t move the needle to get you the max resale price.

Conclusion: Transform Your Real Estate Investment Dreams into Reality

Turning an outdated property into a dream home is not easy, but it can be done with the right resources and determination. Maria’s success demonstrates how getting a hard money loan in Utah to fix and flip a property can produce a profitable outcome.

If you’re considering trying a fix and flip, we are one of the most trusted, Utah Hard Money Lenders out there. 

Ready to start your fix and flip project in Utah?

Contact us today to get preapproved for a hard money loan for a fix and flip or another type of property. Whatever you’re getting into out there, we can help fund your next real estate deal. We have help hundreds of people like Maria to turn their real estate investment aspirations into  success stories. 

Frequently Asked Questions

Q: What is a hard money loan?

A: A hard money loan is a short-term, asset-based loan used primarily by real estate investors. It’s secured by real estate and focuses primarily on property value rather than the borrower’s credit score or income.

Q: Why choose a hard money loan over a traditional bank loan?

A: Hard money loans offer faster approval and funding, flexible terms, and are ideal for properties that may not qualify for traditional financing due to their poor condition.

Q: How quickly can I get a hard money loan in Utah?

A: Approval and funding of our hard money loans in Utah can occur in under a week, allowing Utah real estate investors to act swiftly on opportunities.

 

Hard Money Loan Helps Roy, UT Handyman gain $50K Profit

Introduction

Have you ever wondered how some people seem to find the best real estate deals? Sometimes, the most lucrative real estate opportunities never have a “For Sale” sign out front. These are called off-market properties, and these deals often fly under the radar, offering incredible potential for those who can find them and can act quickly.

In this post, I’d like to share the story of a local handyman from Roy, Utah, who did just that. He transformed an off-market property into a potential $50,000 profit, all thanks to our hard money loan that provided fast funding when traditional banks couldn’t. If you’re interested in real estate investing, or need a hard money loan in Utah or other Western State, read on to see how fast loans like ours, can turn an opportunity into a profitable venture.

Unearthing an Off-Market Gem in Roy


Our story begins when a local handyman was hired to board up the windows of a neglected house in Roy, Utah. The property was part of an estate, and it wasn’t listed on the market—a hidden gem waiting to be discovered. Recognizing its potential, the handyman saw an opportunity to turn this run-down house into a valuable asset. Don’t get me wrong, this house needed A LOT of work! I mean, this handyman was being hired to board up the windows to keep vagrants out, so you know it was in bad shape. But this handyman knows how to remodel homes and this was a project he couldn’t easily take on. So what happened next?

Fix and Flip in Roy Utah we funded with a hard money loan
Fix and Flip in Roy Utah we funded with a hard money loan

 

What Makes Off-Market Properties Special?

Off-market properties are homes that are available for purchase, but aren’t publicly advertised. They might be sold directly by the owner, or through an estate sale, often at prices below market value. For real estate investors, these properties can be goldmines, provided they can secure the cash quickly enough to close the deal.

The Challenge: Securing Funds Quickly

Back to our handyman who encountered an off market property in need of some work. This handyman wanted to buy the property but faced a significant hurdle: he needed to complete the purchase within two weeks. The property owner’s estate manager made that a stipulation of selling him the property. It had to be a cash deal, and it had to be sold in 2 weeks.

Traditional banks, with their lengthy approval processes and strict requirements, weren’t going to make that purchase possible for our sweet handyman. But this handyman happened to know a hard money lender and he knew that hard money loans work similar to cash when it comes to purchasing real estate. Here’s a little more on how that works if you aren’t sure, ‘How to Use Hard Money for an All Cash Offer.’

Why Traditional Loans Weren’t an Option in This Case:

  • Time Constraints: Banks often take 30 to 60 days to approve and fund a loan.
  • Strict Criteria: High credit scores and extensive documentation are typically required to qualify for traditional loans.
  • Property Condition: Banks are hesitant to lend on properties in poor condition like this one.

The Solution: A Hard Money Loan

That’s where a hard money loan came into play. We stepped in to provide the necessary funds, enabling the handyman to close the deal in just five business days. Is that amazing or what?! And that’s how real estate investors are able to purchase off market properties when the average person cannot do so. Now pay attention because here’s where our story starts to get good!

What Is a Hard Money Loan?

A hard money loan is a short-term loan secured by real estate. Unlike traditional lenders, hard money lenders focus more on the property’s value and value potential, rather than the borrower’s credit history.

Benefits of Hard Money Loans

  • Speedy Approval: Loans can be approved and funded in days.
  • Flexible Terms: Loan terms can be tailored to the project’s needs.
  • Asset-Based: Emphasis on the property’s value, not just personal credit. How does that work? Here’s more on the bad credit thing.

Transforming the Property

home renovation with hard money loan to resell
This house was a mess!

With his loan approved, the handyman started renovating the house. It needed significant repairs—from structural fixes to aesthetic updates, like painting and landscaping.

Funding the Renovations

We didn’t just fund the purchase, we also provided some of the money needed for the renovations. This is a hard money rehab loan and it allowed the handyman to focus on transforming the property without worrying about cash flow.

Key Renovations Included:

  • Major Repairs: New roof, new framing in the basement.
  • System Upgrades: Updating electrical wiring and plumbing, new HVAC.
  • Cosmetic Improvements: New flooring, fresh paint, all new kitchen and baths, and improved landscaping.

The Potential Payoff: Aiming for $50,000 Profit

Once the renovations are complete, the property is expected to sell for around $415,000. After accounting for the purchase price, renovation costs, loan-related expenses, and other carrying costs, the handyman stands to make a projected $50,000 profit. After years of building the remodeling and construction skills necessary to rehab a property like this one, this handyman was ready to do his first real estate deal. But without a fast funding hard money loan from us, there’s no way he could have purchased this property, like no way! We made it happen for him, so now, for the numbers!

Breaking Down the Numbers:

  • Expected Sale Price: $415,000
  • Purchase Price: $238,750
  • Renovation Costs: $85,000
  • Expenses: Including loan fees, closing costs, loan payments, and realtor commissions on resale
  • Projected Profit: Approximately $50,000

Note: Exact figures are for illustrative purposes.

Why Hard Money Loans Make Sense in Roy, Utah

This story highlights how hard money loans can be a game-changer for investors, especially when dealing with off-market properties and tight closing timelines.

Advantages Over Traditional Financing:

  • Speed: Get funding in as little as five days!
  • Flexibility: Loan terms can be customized to the needs of the specific deal.
  • Opportunity Access: Real estate investors are able to do what they do because hard money loans allow them to capitalize on deals that require quick action!

Who Benefits the Most?

  • Real Estate Investors: Looking to purchase properties quickly.
  • Handymen and Contractors: Who find undervalued properties needing work that they can put their time and talent into.
  • Buyers with Less-Than-Perfect Credit: Since the focus is on the property, not just credit scores, even someone with bad credit history can do this!

Interested in Similar Opportunities?

If this handyman’s story inspires you, you might be wondering how to find and fund similar deals.

Steps to Get Started

  1. Network Locally: Connect with estate sale managers, realtors, and property owners.
  2. Seek Out Off-Market Deals: Keep your ear to the ground for properties not publicly listed or look for properties in need of maintenance, repairs, or just kept in a poor condition. There may be one right in your neighborhood!
  3. Secure Fast Financing: Partner with a reliable hard money lender familiar with the market that can approve and close your loan quickly by your deadline. And don’t wait until you find a deal, start looking for hard money lenders now!
  4. Plan Your Renovation: Have a clear budget and timeline. Get bids from various contractors if possible. Go conservative on your numbers and the time it will take you to complete the renovation.
  5. Execute and Sell: Complete the work and list the property. Staged properties tend to fetch higher purchase prices as compared to empty homes, so consider staging your property.

Conclusion:

This handyman’s experience in Utah shows how quick action, and the right type of hard money loan, can turn a hidden opportunity into a big profit. By using a hard money loan, this handyman overcame the obstacles that traditional financing presents and he was able to close on this property by the deadline. And now? He is on track to reap the profit once this home is renovated!

Ready to Explore Hard Money Loans in Utah?

If you’re looking to seize similar opportunities and need fast, flexible financing, we’re here to help. With our expertise in hard money lending, we can provide the funds you need to make your investment goals a reality. But don’t wait until you find a deal. That’s the biggest mistake real estate investors make. Find your hard money lenders FIRST, then find out how much of a loan amount you can get approved for. Then, put your hard money lenders contact information in your phone contacts so when the right deal comes along, you are READY!

Interested in learning more? Contact us today for personalized financing solutions.

Frequently Asked Questions:

Q: What is a hard money loan?

A: It’s a short-term loan secured by real estate, often used by real estate investors who need quick funding.

Q: How fast can I get a hard money loan in Utah?

A: We can approve and fund loans in as little as five business days.

Q: Do I need perfect credit to qualify?

A: Not necessarily. Hard money loans focus more on the property’s value than your personal credit history.

Watch the Video

 

Private Money Loan vs. Traditional Loan: Which is Right for You?

Understanding the differences between Private Money and Traditional Loans

In real estate, 2 primary sources of funding emerge as the frontrunners.

•The 2 most known sources are traditional lenders, including banks and mortgage companies.

•The second source and least known, are private money lenders.

Each source has its own advantages and constraints, making the choice between them fairly easy depending on the situation. This article explains the critical differences between private money loans and traditional loans. This should help guide you in making the right choice between using one source over the other, depending on your future circumstances.

Maybe right now you believe you could never need a private money loan, but think again. In this short article, you may find out a private money loan may be best for your needs, now or in the future.

Table of Key Takeaways between Private Money Lenders and Traditional Lenders

Aspect Private Money Lenders Traditional Lenders
Loan Processing Speed Faster Slow
Credit Flexibility More flexible, no min credit scores Strict credit requirements in most cases
Collateral Requirements Focus is on asset Comprehensive asset and borrower analysis
Loan Terms Customizable, short-term Standardized, long terms
Prepayment Penalties None or shorter Almost always
Ideal for Fast funding, shorter term Slower funding scenarios, longer loan terms, lowest rates

The Speed of Loan Processing between Private Money and Tradition Lenders

Private Money Lenders: Renowned for their speed, private money lenders leave traditional lenders in the dust when it comes to closing loans quickly. Private money lenders are often the go-to choice for time-sensitive real estate purchases, or other situations where a fast loan closing is the top priority. Private money lenders gather documentation quickly that’s required to close a loan, usually in a matter of days.

This means you, as the borrower of a private money loan, must be ready to put everything on hold in order to provide documentation quickly during loan processing. A private money lender’s processing time is almost always constrained by the speed of the borrower in providing the requested documentation. Here are some of the most important items that every private money lender will need to process your loan quickly.

Traditional Lenders: In contrast, traditional lenders are much slower in processing their loans. Typically a loan processor for a bank or mortgage company is juggling a number of different loans simultaneously so response time is much slower.

And it’s not unusual for the list of documentation to grow either. Just when you think you’ve provided everything on the list to the loan processor, more and more documents are requested!

It’s the slow processing times of banks and mortgage companies which make them a poor choice for time-sensitive real estate purchases, or other situations where a fast loan closing is the biggest need.

Credit Flexibility and Minimum Credit Score Requirement

Private Money Lenders: Generally more lenient with bad credit histories of borrowers, private money lenders focus more on the asset and its value. In fact, there are many private money lenders that do not require a minimum credit score.

Getting a loan from a private money lender is particularly beneficial for those who might not have perfect credit scores.

Traditional Lenders: Banks and mortgage companies have strict credit criteria and this can pose challenges for those who have less-than-ideal credit histories.

However if a bank or mortgage company offers FHA, or other government backed loans, these loans allow for a low, min credit score of 580 (at the time of this article’s date of publishing).

Ironically it’s both private lenders and the U.S. taxpayers who take on the highest credit risks, but that’s a separate topic.

Collateral Requirements

Private Money Lenders: The primary concern of private lenders is the loan’s collateral, specifically the property characteristics and value. In this context, real estate is the asset that is being put up as the collateral for the loan.

The location, age, condition, and property use are just some of the characteristics of a property that a private lender looks at. Private lenders also look carefully at property value, usually assigning a more conservative value to a property than a traditional lender would.

If the collateral is acceptable to a private money lender, and the loan to value ratio is low, a private lender will typically issue a loan approval without a minimum credit score or income requirement. This is particularly useful for real estate investors who don’t always have perfect credit histories.

Traditional Lenders: The loan collateral is also a primary concern for banks and mortgage companies, particularly the collateral value which is often determined by an appraisal. Traditional lenders generally place as much, if not more emphasis on the borrower’s income, assets, and credit history. More requirements for loan approval eliminate a lot of borrowers right out of the gates because most people don’t meet all of these requirements.

Loan Terms Flexibility

Private Money Lenders: With private lenders, you can often customize the loan term to fit shorter term needs. For example, a private lender may offer a 12 month loan when all a borrower requires is 9 months. A private lender can often modify the typical loan term of 12 months to the 9 month loan term preference of the borrower.

Traditional Lenders: Banks and mortgage companies usually offer loans with standard, specific loan terms that are non negotiable. They are suited for borrowers requiring longer loan terms, from 5 to 30 years.

Prepayment Penalties

Private Money Lenders: Prepayment penalties are deadly for borrowers who have short term loan needs. This is because if you pay the loan off early, you may owe a stiff penalty for doing so.

Because private money loans tend to be short term, usually between 6 months to 3 years, they usually do not have prepayment penalties. For example, a real estate investor who uses a fast funding, private money loan to purchase a rental property but quickly refinances with a long term, 30 year loan.

Or a homeowner who knows she will only live in a home for less than 2 years because of an inevitable job relocation. These are just two examples where a private money loan could be better than traditional financing because of no prepayment penalties. And if private money loans do have prepayment penalties, they are typically shorter, no more than 4 to 6 months.

Traditional Lenders: Almost all loans from banks and mortgage companies (at the time of this article’s publishing) come with prepayment penalties. Most with prepayment penalties of between 3 to 5 years. This means if you pay the loan off anytime before 3 to 5 years, you will have to pay a stiff penalty. Prepayment penalties are one of the most commonly overlooked items by borrowers when getting traditional type loans from banks, credit unions, or mortgage companies. Always ask about the prepayment penalty on any loan program you apply for, before you even apply. If you think you may need a loan for a shorter term than the prepayment period, then do not apply for that specific loan.

Ideal Scenarios for Each Lending Type

Private Money Lenders: They are particularly well-suited for quick processing and funding, as well as for other short-term real estate needs where no prepayment penalty is important. Private money loans are also known for credit score flexibility with approvals based more on the property than the credit score of the borrower.

Traditional Lenders: Traditional loans from banks, credit unions, and mortgage companies are better for long-term loans from 5 years to 30 years. Borrowers who want loans at the lowest possible interest rate for the longest possible term are looking for traditional loans. But in order to get approved for these loans, they demand good credit, high enough income, and a lot of heavy documentation.

Conclusion

In conclusion, understanding the differences between private money loans and traditional loans is crucial in knowing what type of loan is best for a specific situation. Just remember, the next time you find yourself needing a loan, ask yourself which type of loan would be most appropriate for the situation and use this guide to help you choose.

The choice between private money lenders and traditional lenders depends heavily on your specific needs in any given situation. And trust me, the situation will always dictate which source of funding you choose.

If you liked this post, please share it with someone you feel could benefit from it. Curious why people use private money loans? Check out some more reasons why people use private money loans on our blog. Think private money loans could be a fit for your situation? Contact us and get preapproved for a private money loan, we make it super easy, and fast!

Corey Ann Dutton, MBA, PLM, Private Money Lender

Inside Our Hard Money Loan Evaluation Process

Key Takeaways

  • Understanding the basics of hard money loans is crucial.
  • A fast evaluation process helps real estate investors and others achieve their goal of a speedy loan closing and funding.
  • Legal compliance and detailed documentation are non-negotiable.

Introduction

In the fast-paced realm of real estate investing, getting funding on time is critical for your success. That’s why so many real estate investors depend on hard money loans. Hard Money Loans from Private Money Utah are approved quickly with fast funding so that real estate investors can pounce on real estate deals that won’t last long.

But how do we review real estate deals for viability and evaluate risks as the basis for our lending decisions? 

Let’s talk about our loan evaluation criteria for our hard money loans so you can understand how this hard money lender approves and declines loans.

Understanding the Basics of Hard Money Loans

What Are Hard Money Loans?

Unlike conventional loans, hard money loans are primarily asset-based loans, which is one factor that helps expedite the approval process. Hard money loans get their name from using hard assets as collateral such as real estate.

What Type of Borrowers Use Hard Money Loans?

There’s a common myth out there that only desperate or bad credit borrowers are those willing to pay the higher interest rates typically associated with hard money loans. But this couldn’t be further from the truth! In fact, there are so many reasons that people use hard money loans, in fact, some may surprise you. Discover the many reasons why people get hard money loans in greater detail here, and see how many of these reasons turn out to surprise you! 

Our Evaluation Process- How we look at a real estate deal

Our evaluation process for a loan is:

  1. Borrower and/or other third parties provide information about the property being used as collateral for the loan and the borrower.
  2. We review all of the information provided by the borrower and other third parties. We verify that the information is accurate.
  3. After we’ve reviewed all of the information and documentation for the loan file, we do a risk analysis to determine if the level of risk is acceptable.
  4. Once we’ve determined if the level of risk is acceptable, then we price that risk and present the final loan terms to the borrower. 

The subsequent sections will go deeper into the evaluation criteria, legal compliance, and other facets of our due diligence process before approving a loan. For a sneak peek into some real estate deals evaluated and funded by us, check out our Recent Loans Closed section.

Real Estate Deal Evaluation Criteria: The 5 Cs

The 5 Cs are the criteria that make up our evaluation framework in order to fund a hard money loan. The 5 Cs are: Collateral, Character, Cash, Credit, and Cybersecurity.

Collateral: 

Property Use: A thorough review of the property that will be used as collateral for the loan is one of the aspects of asset based loans. The borrower must be ready to provide all of the available information about the property to the lender, including some information that may not be readily available.

Understanding the zoning laws and land use regulations is essential for any lender before lending on a property.

Is there an HOA that regulates property usage? Is the property located in a special district, etc.? Is there a factor about the location that will make the property less desirable? Is there access, or is some sort of easement required? These are just a handful of aspects about the property that a lender looks at when evaluating a loan opportunity.

Property Value: Do the numbers work?

      1. Loan to Value (LTV) Ratio: This crucial metric mirrors the loan amount against the value of the property, or the purchase price, whichever is lower typically. Most hard money lenders lend a certain percentage of the purchase price for a property on purchases, rather than on the appraised value. Because every hard money lender is different, find out what your lender’s max LTV is on purchases and on refinances.
      2. BPO of value versus a Professional Appraisal: Hard money lenders use a variety of methods for valuing a property. Depending on the complexity of the loan, or if a lender doesn’t understand the market well, a lender may choose to go with an appraisal to determine a value for the property.  However, if a lender understands the market well, or needs to close the loan in a hurry, a lender may opt for a Broker’s Price Opinion, often called a “BPO,” to determine a value for the property.  But it’s not as easy as just ordering an appraisal or a BPO. A lender really needs to analyze the report, talk to real estate professionals, and run the numbers, especially on income-producing properties.
      3. Purchase Price Evaluation: If the loan is being requested for a purchase, we must analyze the purchase price against the as-is value of the property. Is the asking price for the property based on its future, intended use? Or is it based on a future value or future rents? If the borrower is paying a lot more for a property as compared to its as-is value, the borrower may need to bring in a larger down payment.  This is because a lender may not be able to rely on a future value given that it requires the work of the borrower to achieve the future value. And if the borrower doesn’t take the action required, there may not be a future value that a lender can count on.Cap rates are something to factor in as well, particularly on a purchase of an income-producing property.
      4. After Repair Value (ARV) and As Completed Value: Typically for Fix and Flip Loans, and construction loans, the “ARV,” or the “As Completed Value,” provide a future property value after repairs are made, or after construction is completed.  Loans that rely on a value at a date in the future, are always higher risk, so a lender must consider all of the potential risks to achieving a future value and how those additional risks can be mitigated.

Ensuring a Clear Title: A thorough title search is imperative to ascertain that the property is free from any liens or litigation. 

Access to Water: Particularly in drier states, water is very important in real estate, so always make sure the property has a source of water, unless the property is on city water. And if a well is required, does the property have a well permit in place, and if not, are permits available in the area where the property is located?

Character: Borrower’s Experience with the Property Type & Track Record 

Evaluating the borrower’s character is not what it seems on the surface. We are not looking at personality traits or moral standards, we are looking at the borrower’s experience, track record, and history.

The questions that should be asked include: Does your borrower have real estate investing experience with this particular property type that is being used as collateral for the loan? Can your borrower carry out the type of project being proposed?

Does your borrower have the track record and experience that can be relied upon?

Cash: Borrower’s Financial Assessment

While the primary focus is on the property, understanding the borrower’s financial standing provides a larger picture of the risk involved. Higher risk doesn’t mean a loan will be declined, but the final interest rate or fees may reflect a higher risk.

Down Payment or Cash Equity: What size down payment is the borrower bringing in on a purchase? If it’s a refinance how much cash equity does the Borrower have in the property?

Cash Reserves: Does the borrower have adequate cash reserves to cover any unforeseen circumstances that may occur? For example if it’s a construction loan, or renovation project, does the borrower have reserves to cover budget overruns? ”

Number of Projects in Process: How many other projects does your borrower have going that require cash outlay? If a borrower has several other projects or businesses that may require more cash outlay, a lender may be hesitant to do a loan.

Having too many projects going at once that all require cash outlay by a borrower is a red flag because it indicates that a borrower may find him or herself in a cash crunch position.

Credit:

Most hard money and private money lenders lend to borrowers with poor credit, and many of them do not have a minimum credit score requirement. However, many lenders will require a credit report to mitigate fraud. In higher risk loan transactions, such as value add real estate deals, or construction loans, credit may become a more important factor in loan approval.

Cybersecurity & Fraud:

There are several areas to a loan transaction that can invite fraud. Since everything is done digitally and online these days, it has become harder to prove identities of borrowers. When evaluating a loan opportunity, a lender must be aware of identity theft, whereby someone impersonates a real person and attempts to obtain a loan in that person’s name. A lender must have cybersecurity measures and fraud prevention procedures in place to avoid becoming a victim of this type of fraud.

Additional Risk Factors Hard Money Lenders Consider: 

Legal Compliance:

Adhering to State and Federal laws with your lending practices is crucial to managing risk. Are you complying with usury laws in the jurisdiction where you are making loans? And then what are the disclosure requirements for the type of loan you are making? Do you have to comply with certain standards based on occupancy status, or property use? 

Market Conditions:

Evaluating both the current market conditions and the expected future conditions helps in understanding the potential growth or potential depreciation of the property’s value.

Where are you in a real estate or market cycle? Are interest rates expected to go up, and if so, what interest rate and for what term would be appropriate for a given loan? Are there a lot of properties for sale at the same target price point that your borrower is planning to resell a property you are loaning on?

Exit Strategy: How will you pay the hard money loan back?

Assessing the borrower’s exit strategy—whether it’s selling the property or refinancing—and testing the viability of that exit strategy is critical. What is the borrower’s plan for paying the loan back, and is that a viable plan? Always ask your borrower for a secondary or tertiary exit strategy. Sometimes other information will be required to determine if the borrower’s exit strategy is viable, particularly if the exit strategy is a refinance. If a borrower has poor credit or not enough cash equity, the chance of a refinance as an exit strategy lessens.

Changing State and Local Regulations:

Are there any pending state or local regulations that could affect the property, or the future property use? For example, if the property is a short-term rental, will pending regulations affect the property use in the future, and if so, how will this affect your exit strategy on the loan?

Environmental Considerations:

Does this area have any known environmental issues? Is there a property nearby that could pose future environmental problems such as proximity to a dry cleaners, automotive repair shop, a printing shop, etc.? If the property is located near to a property that has created environmental contamination, it may have also been contaminated.

Changing Flood Maps:

Lenders use flood maps to determine whether flood insurance is required. However these maps are not meant to be predictive and lenders considering whether flood insurance should be required should take into account the overall flood risk to the property. “Maps do not forecast flooding. Maps only reflect past flooding conditions and are a snapshot in time. They do not represent all hazards and do not predict future conditions,” said Michael Grimm, former deputy associate administrator of FEMA’s Federal Insurance and Mitigation Administration.

 

 

Grimm also identified the challenge when it comes to mapping flooding from intense and heavy rainfall, which seems to be a by-product of a warming climate.

Grimm said. “What the maps right now are mainly covering are that coastal flood hazard and the riverine flood hazard for larger riverine watersheds. We know that as climate changes, the impacts are getting worse. We’re seeing more and more flooding going on as a result.”

FEMA is required to review a community’s flood maps every 5 years and then decide whether to update them. Insurance rates may change once a flood map change becomes effective. This is a growing concern for lenders as flood maps across the U.S. are changing, or soon to be changing.

Properties that were once located in 500-year floodplains could be named 100-year floodplains. And properties that weren’t previously at risk of flooding are now at risk due to improper drainage infrastructure of the city where the property is located. 

Insurance Availability:

With a changing climate comes also changes to insurance requirements. Some locations that are insurable now may in the future come with higher priced premiums, or become uninsurable altogether.  If you’re doing a refinance, how likely is it that a property you’re lending on may be uninsurable sometime in the future? If you’re loaning on a flip, or new construction, how will the cost and availability of insurance affect the resale of the property?

Lenders will begin to redline certain locations based on the availability, or not, of insurance as the effects of climate warming are fully realized.

Conclusion:

A lender must take a disciplined and methodical approach when evaluating a hard money loan opportunity. Because there are so many factors to consider when making a loan, potential lenders should not be lured by the promise of superior returns. This naive approach to private money lending can present some fairly predictable pitfalls that most certainly will turn to losses. 

A property loan is extremely complex because a private money lender must have an understanding of many aspects of the property being used as collateral for the loan, as well as the borrower. A lender must fully understand the legal and regulatory framework, the current and future market conditions, just to name a few. Many private money lenders fail to look at the forest for the trees, as the familiar saying goes. New and inexperienced lenders become so focused on the trees, AKA the loan opportunities, that they fail to see the forest around them. 

For a deeper understanding of hard money loans, check out our Hard Money Video Resources and the Recent Loans Closed section of our website.

Deal Evaluation FAQs

What is a Hard Money Loan?
A hard money loan is primarily asset-based financing provided by a non bank lender.

How quickly can a Hard Money Loan be approved?
Loan approval can be expedited, often within a few days, provided all necessary information is submitted to the lender.

What is the Loan to Value (LTV) ratio in Hard Money Loans?
The LTV ratio is a metric that reflects the loan amount against the value of the property.

What is the significance of the After Repair Value (ARV)?
The ARV is the future value of a fix-and-flip property after renovation.

Are there different types of Hard Money Loans?
Yes, including Fix and Flip Loans, Bridge Loans, and Commercial Bridge Loans.

Utah Real Estate Unveiled: An Investor’s Guide

Introduction

Real estate investors who are considering real estate investment in Utah often ask, how do I get started? or, what are the best cities for real estate investment in Utah?

Investing in the Utah real estate market requires research and planning on your part if you want to be successful. And the same thing goes for investing in any new market. In this article I’ll give you some insider tips for successful real estate investment in Utah. As a real estate lender, not only do I review new Utah real estate investment opportunities weekly, but I have a comprehensive knowledge of the Utah real estate market as a whole.

Utah’s economic growth and stability, combined with a growing population, are the primary reasons that real estate investors are investing in the Utah real estate market. In this Utah real estate investing guide, I will provide a general overview of real estate investment in Utah to help you decide if it’s for you.

I will start with a few key factors that make investing in the Utah real estate market an attractive choice for real estate investors. I will also point out a few factors that deter real estate investors from entering the Utah real estate market. I will discuss the best cities for real estate investment in Utah. And then finally, this guide will help you identify a few legal considerations for real estate investment in Utah.


Overview of Real Estate Investment in Utah

Utah’s Economic Growth and Stability

Utah’s economy has seen explosive population growth since 2010 and it spiked right after the pandemic in 2020. With its rapid population trajectory, combined with the current lack of affordable housing, many out-of-state investors have been drawn to real estate investment in Utah.

Utah had the lowest unemployment rate in the nation in 2022, due in part to a regulatory environment that is favorable to small businesses. The low unemployment rate and favorable business climate have spurred all sorts of new real estate investment in Utah. 

Real estate investors are also able to diversify within the Utah real estate market by investing in different property types such as: storage units, residential land development, and short term rentals.

Benefits of Investing in Utah’s Real Estate Sector

Investing in the Utah real estate market offers numerous benefits for real estate investors. Utah is landlord-friendly as compared with California which is tenant-friendly. 

Demand for housing in Utah has been steady since 2010 with low vacancy rates. Property values have also seen steady appreciation since 2010. The real estate market in Utah shows promising forecasts for future growth too, which provides real estate investors the potential for above average returns.

Analyzing Utah’s Real Estate Market

Identifying Promising Areas for Investment in Utah

Utah has several geographic areas that have strong population growth projections, which point to an increasing demand for housing. Some of these geographic areas include, Tooele County, Summit County, Morgan County, Emery County,  Weber County, Cache County, Duchesne County, Washington County, and Grand County.

Property Types and Market Demand

Because each of these geographic areas has its own unique factors, and also because there are a diverse range of property types to choose from, you really need to decide “where” and “what,” before you make any real estate investment in Utah. 

For example, some of the areas I’ve listed are tourist destinations, so real estate investors who are focusing on short term rentals would start by looking in those areas. Some areas in Utah are still very rural and have low housing inventory, but projections show future growth. These areas will attract real estate investors who are targeting all property types including fix and flips, long term rentals, or residential spec construction. 

By carefully researching the different geographic areas in Utah and measuring current and future market demand, a real estate investor can determine if a particular property type would be a fit for that area. For example, in a city with a large number of apartment complexes, a self storage facility may be a desirable property type in that city.

Utah Rental Market Analysis

The rental market in Utah is driven by the factors already mentioned including: population growth, job opportunities, and a robust tourism industry. By obtaining a thorough rental market analysis from a local real estate broker or property manager,  you can identify areas with high rental demand, areas with rental rates that cash flow, and areas with potential for rental income growth. 

Unfortunately for investors in long term rental properties, ever since 2016 when Utah property values really started to increase rapidly, rental rates didn’t rise as fast as prices. And then prices spiked, from the end of 2020 through the spring of 2022, making it even harder for investors in long term rentals to find properties with cash flow.  

At the time this article was written, it was difficult to find a rental property in Utah that cash flowed. For this reason, many real estate investors in Utah have purchased rental properties in recent years with the goal of future value appreciation, rather than with an expectation of cash flow.

Factors to Consider Before Investing in Utah

The Legal Considerations for Real Estate Investment in Utah

Before diving into real estate in Utah you must first have an understanding of the legal considerations for real estate investment in Utah. For example, the regulatory bodies that govern businesses and real estate in the state. The Division of Real Estate governs all things real estate and mortgage in Utah. And the Utah Division of Corporations governs all things business. Familiarize yourself with Utah real estate laws, its property ownership laws, landlord-tenant laws, and property management regulations. 

What individual name or business entity name will you be doing business in Utah under? Are you setting up a Utah business entity, or are you operating under a foreign business entity that should be registered in Utah? Consult with a CPA that understands your tax goals and can suggest the right type of business entity structure that would be best for you. 

Utah is in the top 10 states with the lowest property taxes. The Utah State Tax Commission is the entity where you file and pay your income taxes. Find a CPA that has experience working with real estate investors and can provide advice on tax strategies based on your specific real estate investment goals.

 

Additionally, explore any tax incentives or exemptions available for certain types of investments, such as historic properties or renewable energy projects.

A knowledgeable realtor in Utah is the type of advisor that can help you navigate Utah real estate investment opportunities. But consult with a real estate attorney on more complex real estate matters such as complicated contracts or partnership agreements, title, land, and development, are just a few areas where legal advice is essential. 

Short Term Rentals (STRs) in Utah are regulated in Utah all the way down to the local level. They can be regulated by the County, but in some cases it’s left up to the municipality, i.e. town. And then any short term rental may also be subject to the jurisdiction of the individual Homeowners Association (HOA) where the property is located. Always do careful research to make sure STRs are allowed at the properties you are targeting for short term rental investment purposes.

Financing Options and Strategies

How will you fund your real estate deals in Utah? To have multiple financing options is crucial for success in real estate investment in Utah and in any real estate market.

There are a variety of financing avenues for purchasing real estate in Utah, including traditional mortgages and hard money loans. But you must first figure out what your investment strategy is, and what your long term goals are for a property. Then take your goals to a good mortgage broker, or other seasoned financing pro. 

Corey Dutton, a private money lender based in Utah, is one of those seasoned pros who’s both a mortgage broker and a private money lender. Professionals like Corey can help you decide how you will fund your purchases of investment properties in Utah based on your short term and long term goals. 

The real estate market in Utah is competitive. Motivated sellers may sell properties at a discount but only to buyers with cash, or fast funding hard money loans. Unless you’re planning to come in and purchase with all of your own cash, you should consider getting preapproved with a hard money lending company before you start your search for real estate investment properties to buy in Utah. 

The best Utah real estate investment opportunities, like anywhere, never last long. In order to compete in a competitive real estate market, you need to be ready to purchase with all cash. But most real estate investors don’t have large amounts of cash on hand. For this reason, most real estate investors use hard money loans to purchase real estate investment properties and then either sell or refinance to pay off the loans. 

Hard money lenders in Utah are your best source for fast loan approval and funding to give you a competitive advantage. Make friends with a good mortgage broker, and a good hard money lender, in Utah. They can both give you advice on how to best finance your properties and accomplish your real estate investing in the Utah real estate market. A lot of traditional mortgage brokers don’t understand how private money loans work so make sure you also get to know a good hard money lender in Utah.

 

Top Tips for Successful Real Estate Investment in Utah

Build a Strong Network of Professionals and Team of Advisors

Seek the expertise of real estate agents, attorneys, and tax advisors who specialize real estate when investing in the Utah real estate market. They can guide you through the intricacies of local regulations, assist with property transactions, and ensure compliance with applicable laws. 

Collaborating with local real estate professionals can provide you with valuable insights when investing in any new market. Connect with local property managers, contractors, and title companies, lenders who have experience in the Utah market. They can provide not only guidance, but also potential investment opportunities. 

Building relationships with professionals ensures you have a team to support your investment journey in Utah that can help you navigate any challenges that may arise. How do you network with, and learn from, local real estate professionals? Consider joining a local chapter of any Utah Real Estate Investor Club, or local Real Estate Investor Association, there are several scattered across the major geographic areas in Utah. 

Understand Legal and Tax Considerations of Real Estate Investing in Utah

Having a solid team of professional advisors is key to your success. Real estate attorneys, experienced real estate brokers, and seasoned tax professionals are a few of the types of advisors that you need on your “team” to help you accomplish your goals in real estate investing in Utah. Without them, you are just finding information on the internet somewhere and trying to do it all yourself. Never cut corners or cheap out when it comes to the right professional advice.

Conduct Thorough Market Research

Thorough market research is the foundation of any successful real estate investment. Make sure you carefully analyze historical trends, that you evaluate current market conditions, and then make future projections of profits, income, etc. Your numbers work, or they don’t work. And if the numbers don’t work for what you want to do with the property, then move onto the next deal quickly. The sooner you make a decision to proceed with the investment property purchase or not, the closer you’ll be to the right one. 

In Utah, you need to look for areas with potential for job growth, city center initiatives favoring growth, and expansion of infrastructure. Identify neighborhoods or cities that show potential for appreciation from high rental demand. Whatever your exit strategy is for the real estate investment property, all of these factors play an important role in your success in a particular neighborhood or location.  


Implement Effective Property Management Strategies

Efficient property management is crucial for optimizing returns and maintaining the value of your investments. Whether you choose to self-manage, or hire a professional property management company, establish effective systems for tenant screening, rent collection, maintenance, and lease agreements. Good property management ensures a profitable operation by minimizing vacancies, and saving money where possible, while also staying on top of maintenance. 

Best Cities for Real Estate Investment in Utah

Salt Lake City: Growth Drivers, Investment Opportunities

Salt Lake County is where the capital, Salt Lake City, is located. Salt Lake City is one of the fastest growing cities in Utah for multifamily (apartment construction) in recent years. With several colleges and universities, and 3 ski resorts, Salt Lake City has seen a steady demand for housing over the past 10 years. 

If you can find a rental property in Salt Lake County at the right price where the rental numbers work, take it down. There are a lot of older, dated homes in Salt Lake City, which presents future opportunities for fix and flips or other value add plays. That is, if you can purchase the properties at low enough prices. 

Because of the high demand for housing in Salt Lake City, a recently renovated, well designed home can often demand multiple offers. Margins have been getting tighter in recent years with so much competition among real estate investors in Utah for both fix and flip, and rental investment properties in Salt Lake City, Utah.

Salt Lake County has a robust job market with a growing population. There has been a revitalization of areas of downtown Salt Lake City in recent years with the development of new residential and commercial. But many multifamily real estate investors wonder if the multifamily market is saturated with new inventory in Salt Lake City. 

If Salt Lake City is saturated with new construction and multifamily properties, maybe a better play is converting commercial properties to affordable housing, or workforce housing. Land prices are always a factor that real estate investors need to monitor in new development projects, especially when developing affordable housing or workforce housing. And with land prices at historically high levels in Salt Lake County at the time this article was written, these types of projects don’t prove as profitable as high density, multifamily projects. 

Park City: Tourism and Rental Potential

Summit County is renowned for its world-class ski resorts and vibrant tourism industry. It attracts visitors from around the world, offering excellent opportunities for vacation rental investments and second home ownership. Park City, the cash cow city for Summit County, hosts major events like the Sundance Film Festival and large scale summer events and festivals that draw visitors. For this reason, Park City made my list of the best cities for real estate investment in Utah. Additionally, Park City’s charm and natural beauty make it an appealing location for luxury residential properties for use as short term rentals, as fix and flip investments, or spec construction.

Provo & Orem, UT: Student Housing & Household Formation 

Utah County has been one of the fastest growing counties in Utah in recent years, and among the fastest in the nation. According to U.S. Census data, Utah County made the top 10 list of U.S. counties that saw the most growth during the pandemic.

Provo and Orem are two sister cities in Utah County that made the list of the best cities for real estate investment in Utah. These were two of fastest growing cities in the entire U.S. during the pandemic. 

Provo is home to Brigham Young University where student housing has been historically, very highly regulated. Changes to the BYU Student Housing Policy that went into effect in the fall of 2022, have opened up more opportunities for real estate investors near the BYU campus.

And then post graduation, college students in Provo and Orem want to stay locally and raise their families. For this reason, new family formation also drives the housing demand in Utah County. 

Lehi: Technology Industry Influence

The presence of a highly educated workforce and a culture of innovation both contribute to Utah’s economic growth. Lehi has a thriving technology sector, often referred to as, “Silicon Slopes.” Because of the rapid growth in Lehi, Utah in recent years, real estate investors can explore both residential and commercial acquisition and development.

Saint George, UT: The Migration Capital of Utah

There was a lot of migration during the 1st year after the COVID-19 pandemic started. And in 2022 U.S. Census data showed that one the metros in the U.S. that saw the most growth between July 1, 2020 through July 1, 2021 was Saint George, Utah. 

Saint George is not just a migration destination, but it’s also a destination for retirees because of its warm climate, and it’s also a vacation destination for tourists because it’s near 3 national parks. Because of its broad appeal, Saint George, Utah definitely made my list of the best cities for real estate investment in Utah.


Conclusion

Utah has landlord-friendly laws, low vacancy rates, and strong demand for housing that has been steadily growing since 2010. The real estate market in Utah shows promising forecasts for future growth too, which gives real estate investors an opportunity for future appreciation.

But to take advantage of Utah’s real estate investment potential you need a comprehensive understanding of your target counties and cities, and you need to decide what property types you plan to focus on. Whether your chosen property types are residential fix and flip, spec construction, long term rentals, land development, or commercial industrial, you need to know if there’s a demand for that property type in your areas of focus.

There are also legal considerations, tax considerations, and the need to find financing. And then finally, build a network in the real estate investing community in Utah and use a qualified team of professional advisors to guide your journey. 

Still thinking you want to do real estate investment in Utah? Reach out to us to discuss your real estate investment goals and we can help you figure out the best way to fund them.

Understanding DSCR Loans: A Real Estate Investor’s Guide

In the realm of real estate loans, DSCR loans have emerged as an excellent tool for real estate investors. My name is Corey Dutton and with many years in the real estate lending industry, I’ve gained extensive knowledge about various financing options that are available for real estate investors, including DSCR loans. This guide will help explain DSCR loans to you, while offering some insights for you in your journey to finance your purchases of investment real estate.

What is a DSCR Loan?

DSCR, stands for, “Debt Service Coverage Ratio.” This is a term, or type of loan, that is  specifically intended for real estate investors. But why are they for real estate investors? Unlike traditional loans that focus on your personal income for loan approval, DSCR loans have a different approach.

The income potential of the investment property is the driving factor for loan approval with these DSCR loans versus your own personal income. This means that if you have income from non-traditional sources, or if you write off a lot of expenses on your taxes and don’t have a lot of taxable income – – Well, you can still qualify for a DSCR loan on an investment property. 

Now, why is this so crucial? Imagine being an investor with a golden opportunity to snag a rental property, but your personal income doesn’t quite fit the traditional mold. In other words your personal financial metrics don’t align with traditional lending criteria. That’s where DSCR loans come into play. 

These DSCR lenders look more at how much the property itself will earn in income to cover the loan payments over time, rather than the personal income, or the net worth of the borrower. If you’ve snagged a good rental property and can make enough income from the property to support the loan payments, a DSCR loan may be a good fit. Let me tell you why.

 

What Types of Real Estate Can You Buy with a DSCR loan?

DSCR loans cater to a variety of income-producing properties including:

  • Single-Family Rental Property: This includes Single Family Homes, individual Townhomes, Condominiums, and even some manufactured housing.
  • Multifamily Property: Properties with more than one unit, from duplexes all the way to large apartment complexes.
  • Commercial Property: This includes retail, office, and industrial. Pretty much any commercial property that is income-producing.

Mixed-Use Properties: Buildings that combine both residential and commercial elements.

DSCR Loan Programs We Offer

We offer all types of DSCR loans for real estate investors for both the purchase and refinance of investment properties. Our DSCR loans cover a multitude of property types. A summary of the loan terms for our DSCR loan programs include:

  • Property types we lend on: income-producing property types from single family homes, to manufactured homes, from apartment complexes to industrial commercial properties. Most property types are considered as long as the property is income-producing.
  • Under 600 credit score ok
  • Loan amounts up to $50 MM
  • DSCR ratios from as low as 0.85
  • Loan terms: Interest only, 5 year and 7 year fixed, and 30 years
  • Competitive interest rates as compared with banks
  • Low points and fees

Benefits of DSCR Loans for Real Estate Investors

  1. Rental Income Evaluation:
    DSCR loans look at the property’s income potential more than the investor’s personal finances.
  2. Flexibility with Property Type:
    From manufactured or modular housing to multi-unit apartment complexes and beyond. DSCR loans adapt to various property types, freeing investors from traditional loan constraints.
  3. Credit:Even borrowers with low credit scores can qualify for DSCR loans. Some DSCR programs go as low as 580 credit score. But it’s worth noting that the lower your credit score, the MORE you’ll have to bring in down on a purchase using a DSCR loan.
  4. Perfect for the BRRRR Method of Investing:
    Real estate investors can build their real estate portfolios faster using the BRRRR Investment Strategy. Properties can be bought with hard money loans, rehabbed, then rented, and then refinanced with a DSCR loan. Real estate investors are then able to repeat this process over and over again, thereby building their real estate portfolios faster.

How to Calculate DSCR

So how do you know if a property makes enough income to qualify for a DSCR loan? It’s all about understanding the relationship between the income a property generates and the debt  owed on it. Let’s break it down, step-by-step, check it out:

  1. Determine the Net Operating Income (NOI) of the Property:
    Start by figuring out the property’s annual, net operating income. This is the total income the property generates minus its operating expenses. Remember, this doesn’t include any mortgage payments or other financing costs. In this example you will take out your property taxes and insurance as annual, operating expenses to arrive at your final NOI number. (Note: make sure not to include property taxes and insurance as part of the monthly loan payment, otherwise you would be double counting these expenses).

 

Formula:
[  NOI = Gross Rental Income – Operating Expenses (incl. Taxes and Insurance)  ]

 

  1. Identify Annual Loan Payments:
    This is the total amount you’ll pay annually for the property’s debt, which includes principal and interest *(Note: In this example you are not including property taxes and insurance as part of the monthly loan payment).

 

 Formula
[  Annual Debt Service = Monthly Mortgage Payment x 12 months  ]

 

  1. Calculate DSCR

Now, divide the Annual Net Operating Income by the Annual Debt Service. The resulting number is your DSCR or “Debt Service Coverage Ratio.”

 

Formula
[  DSCR = NOI  /  Annual Debt Service  ]

 

Example, if your property has an annual NOI of $120,000 and an annual debt service of $100,000, the DSCR would be 1.2. *(Anything over 1 is good, see below why it’s good).

 

Now what does a DSCR of 1.2 mean? A DSCR of 1.2 means the property generates 1.2 times more income than its debt. 

 

A DSCR of 1 means the property generates the same amount of the debt.  

 

And DSCR below 1 means the property is NOT generating enough income to cover its debt. 

 

Many DSCR loan programs require a DSCR of 1 or higher. If the DSCR is below 1, you can still get the loan, but you will be required to bring in a larger down payment or use your personal income to offset the difference between what your property is earning in income and your monthly loan payment.

What is a good DSCR for rental property?

In the realm of rental properties, the DSCR (Debt Service Coverage Ratio) plays a pivotal role in gauging financial health. A good DSCR for rental property typically hovers around 1.2 to 1.4. This means that for every dollar of debt, the property generates $1.20 to $1.40 in income.

However, it’s worth noting that while a DSCR of 1 indicates break-even, anything below 1 can be a red flag, suggesting potential income shortfalls. If there’s not an opportunity to increase income on the property, it may not be a good investment. As always, individual lender preferences can vary, but aiming for a DSCR north of 1.2 can keep your down payment requirement lower, and keep your personal income out of the equation entirely.

Real-World DSCR Scenario: The Case of Emilio’s Rental Property


Emilio, an ambitious real estate investor, had his eyes set on a rental property in a growing part of town. The property gets monthly, gross rents of $1,600. But Emilio’s personal income, derived from being a subcontractor, is inconsistent. Emilio writes off a lot of his expenses so his taxable income is close to zero. Traditional lenders were hesitant to approve him for a loan to purchase an investment property because his personal income is so inconsistent.

Income Potential:
The property’s potential gross rental income is $1,600 per month or $19,200 annually. After accounting for operating expenses like hazard insurance, utilities, property management fees, and property taxes, the annual, Net Operating Income (NOI) comes down to $15,360.00 annually.

 

Loan Details:
Emilio needs a loan of $175,000 on the property. The terms offered by a DSCR lender are: 7.5% interest rate with a 30-year term, fixed rate, principal and interest payments. This translates to an annual debt service (principal + interest) of $14,683.56 *(excludes impounds for taxes and insurance).

 

DSCR Calculation:

Using the DSCR formula, Emilio calculated his ratio: DSCR = NOI / Annual Debt Service

$15,360.00 / $14,683.56 = 1.04

 

The DSCR in this example is 1.04

A DSCR of 1.04 is a good sign. It means that the property is earning more in rental income than the debt. Another way to look at it, is for every dollar of debt, the property could generate $1.04 in income.

The DSCR lender that Emilio is talking to has a DSCR requirement of 1 for the loan amount he’s requesting of $175,000. This means that Emilio will qualify for the DSCR loan for this rental property because the DSCR is slightly over 1 at 1.04. The lender is not concerned about Emilio’s fluctuating personal income because the rental property has a DSCR over its requirement of 1. Emilio purchased the property in under 10 days using a hard money loan. Once he had the property rented, he paid off (refinanced) the hard money loan with a DSCR loan. 

This scenario shows the power of DSCR loans, but it is also a good example of how real estate investors are using the BRRRR method of real estate investing. delve deeper into the BRRRR method. Real estate investors like Emilio who are building their real estate portfolios typically use hard money loans to purchase properties quickly because a hard money loan can resemble cash transactions. Once the properties are rehabbed and rented, real estate investors are able to refinance the hard money loans into 30 year loans based on the rental income, rather than based on their personal incomes.

 

FAQs on DSCR Loans

Who Offers DSCR Loans?

Traditional Bank Lenders:

Yes it’s true, traditional bank lenders do offer DSCR loans. Banks tend to advertise these loans as “investment” property loans. Although DSCR loans from banks take awhile to fund so don’t think you can use a DSCR loan from a bank to purchase a property quickly.

If you have all the time in the world to close on the purchase of an investment property, a DSCR loan from a bank could be an option. But normally, sellers of investment properties want to sell as quickly as possible, especially if they are selling properties at good prices. The role of hard money loans in swift aquisitions. A hard money loan is typically used for the purchase of the investment property, which is later refinanced by a bank loan.

 

Credit Unions:

Similar to banks, credit unions also offer DSCR loans to real estate investors. Although sometimes faster than a bank, credit unions are still very slow in underwriting and funding loans. So if you want to purchase a property quickly, a hard money loan is your best bet. But make sure to talk with a loan officer at your credit union before you complete the purchase to make sure you understand all of the requirements for refinancing and can meet those requirements. The importance of a planned exit for hard money loans because hard money loans are short term loans of usually one year, with higher interest rates as compared with traditional loans.

Specialty Finance Companies:

These are lending firms that specialize in niche financial products and DSCR loans are often in their long list of loan offerings. Most of them are found online and are more of a broker, or loan wholesaler, rather than a direct lender. 

 

What Are the Downsides of a DSCR loan?

Some real estate investors might find the loan terms of a DSCR loan less favorable as compared with a traditional bank loan. Firstly, they often carry higher interest rates compared to traditional mortgages. Secondly, the loan approval process can take a long time, with lenders evaluating the property’s income potential by ordering appraisals which can often be very slow.

This means it’s very difficult to use a DSCR loan for a property purchase because it’s just not a fast process to get to the finish line on a DSCR loan. If you need to move fast to close on an investment property you would typically use a hard money loan for the purchase and then refinance later with a DSCR loan.

Other downsides are the shorter, fixed rate, loan terms often found in DSCR loans, which means the rate may only be fixed for 5 to 7 years. DSCR loans may also come with prepayment penalties, for example, some with up to 5 year penalties.

This means if you have a high interest rate DSCR loan, and then rates suddenly go down, you’re stuck holding the DSCR loan for 5 years because it has a 5 year prepayment penalty on it. If you pay it off in under 5 years, you have to pay a penalty, and sometimes a very stiff penalty.

And another downside of a DSCR loan is the larger down payment requirements as compared with traditional bank loans. Credit plays a factor in how much down payment you will be required to bring in on an investment property purchase when using a DSCR loan. For example, if you have a credit score below 650, you may be required to bring in a 25% down payment on a DSCR purchase loan.

If you have bad credit and are considering DSCR loans, make sure you understand how your credit score will affect your required down payment. Also if you have a low credit score, find out the loan amount you can get approved for if you’re planning to refinance a hard money loan with a DSCR loan.

Can a DSCR Loan be Owner Occupied?

Traditionally DSCR loans have been the go-to loans for non-owner occupied properties. However, the landscape of lending is ever-evolving.

While it’s less common, some lenders have started offering DSCR loans on properties that are only partially owner-occupied. For example a multifamily property like a four plex, whereby the owner occupies one of the units and rents out the other four units. As always, make sure to check with each individual lender, as the requirements and conditions can vary greatly among DSCR lenders.

Does DSCR include Property Taxes and Insurance?

This concept is a super important thing to understand so don’t skim over this section! When calculating your DSCR, or Debt Service Coverage Ratio, it’s essential to understand what operating expenses are factored into the calculation.

Typically, the DSCR calculation focuses on the annual Net Operating Income (NOI) of a property, which is rental revenue for the year minus operating expenses for the year. In the previous example described above, operating expenses did include property taxes and insurance.

Please note in the above example that property taxes and insurance are not included in the debt payment total. In the above example, the DSCR lender only requires principal and interest payments, the lender does NOT require insurance and taxes to be included in the monthly payments.

On the flip side, some lenders will include the taxes and insurance in the monthly payment amount. This means you will pay these expenses as part of your total monthly payment. In other words, you would pay principal, interest, a portion of property taxes for the year, and a portion of the insurance for a year as part of your monthly payment.

If a DSCR lender does require that you escrow the property taxes and insurance, make sure not to count them as operating expenses.

 

What’s the Down Payment Requirement for a DSCR loan?

As with any loan, the question of down payment is usually the first question. While the traditional amount for conventional mortgages is typically a 20% down payment, DSCR loans can have higher down payment requirements.

This is where credit score and loan size come into play. Typically the lower the credit score of the borrower, the higher the down payment requirement. And likewise, the higher the loan amount over $1 MM, the higher the down payment requirement.

For example, a borrower with a 750 credit score borrowing under $1 MM can get away with only a 20% down payment. While a borrower with a 575 credit score borrowing under $1 MM would need to bring in 35% down.

But what if you have a good credit score of 750, but you’re wanting to borrow $2 MM?
Most DSCR loans over a $2 MM loan amount, even with good credit, require a down payment of 35%. That’s a sizeable down payment if you’re not expecting it! And those with credit scores below 650 may not qualify AT ALL for a DSCR loan with a loan amount over $2 MM.

Conclusion

DSCR loans are a great tool for real estate investors to use for building their real estate portfolios over time. DSCR loans go off the income potential of the property for loan approval rather than going off of your personal income for approval.

This means you can hold multiple properties in your real estate portfolio for between 5 to 30 years using DSCR loans. However, because DSCR loans are typically slow to fund, you can get away with using a hard money loan to purchase an investment property quickly and then refinance with a DSCR loan.

And some DSCR lenders allow your credit score to be below 600, so you don’t need excellent credit to qualify. But be aware that the lower your credit score, the larger the down payment requirement on a purchase with a DSCR loan.

And on a refinance using a DSCR loan, the lower credit score you have the lower the loan amount you can qualify for. This means, you should take your credit score into consideration when looking at DSCR loans for the purchase or refinance of investment properties.

 

 

How to Submit a Hard Money Loan: Tips for Real Estate Investors

Submitting a hard money loan can feel like an intimidating task for real estate investors looking for funding. But if you know how to submit a hard money loan, it’s easy! This blog post will give you the necessary insight on how to effectively submit a hard money loan that will increase your chances of approval and help you get the funding you want.

Using a basic loan summary to submit hard money loans to your lenders is key to successful loan submissions. By following these steps that I outline in this article, you’ll receive the best possible outcome and get funded fast.

To submit a loan to a hard money lender to get a yes or no answer quickly, you need a loan summary and photos. If the property is a fix and flip, you’ll also need your comparables to support your after repair value and an estimated rehab budget.

Here’s your cheat sheet, check this out! Below is a basic “loan summary” and it includes all of the information that a private money, hard money lender will need to give you a yes or no answer. Lenders are busy, and so are you, so use this form to give them a snapshot of the loan, to see if it fits in their parameters.

The below loan summary includes the most important details about the property and the deal that you need funding for such as property address, property description, property value, etc. When a private money, hard money lender gets this loan summary from you, you are going to get his/her attention and you’ll definitely get a yes or no answer quickly. Providing a loan summary to your lender also shows that you’re organized and on top of your game.

What is the most common mistake that borrowers make when submitting hard money loans? It’s so simple that you’ll be surprised to hear that it’s just….property photos! Yes, people almost always forget to send property photos when they are submitting a loan to a private money, hard money lender for approval. Even if you have just one, front, exterior photo, send it to your lender along with this loan summary. The more photos the better!

Keep this tool in your toolbox because you’re going to need it if you want to get funding fast from a private money, hard money lender. And if you have any other questions about loan submissions to hard money lenders, leave them in the comments below.


Property Address: This is the physical address of the property that the loan will be used for.

Property Classification/Type (Residential or Commercial?): This is the classification of the property, whether it’s a residential or commercial property.

Property Description: IF RESIDENTIAL: # of beds/# of baths/sq footage, lot size, garage? Year built? This provides details about the property such as the number of bedrooms and bathrooms, square footage, lot size, garage, and the year it was built.

Property Description: IF COMMERCIAL: How many buildings? Total bldg. sq. footage, acreage, year built. This provides details about the commercial property such as the number of buildings, total building square footage, acreage, and the year it was built.

IF PURCHASE: List purchase price or offer price: If the loan is for a purchase, this will list the purchase price or the offer price for the property.

IF A REFINANCE: List amount of debt to be paid off with new loan requested: If the loan is for a refinance, this will list the amount of debt that the borrower wants to pay off with the new loan.

IF A REFINANCE: Amount of loan fees/ interest reserves requested in addition to base loan amount: If the loan is for a refinance, this will list the additional loan fees or interest reserves requested in addition to the base loan amount.

IF REFINANCE: When purchased? For how much? This will list when the property was purchased and for how much it was purchased.

List amount of repairs or rehab: This will list the amount of money that will be used for repairs or rehab on the property.

Property Value: (based on?) This will list the value of the property, based on an appraisal or other valuation method.

Current lien(s) if not applicable please put, n/a: This will list any current liens on the property, if applicable.

Loan Term Requested (How long do you need a loan for?): This will indicate the length of time that the borrower needs the loan for.

Exit Strategy (How do you plan to pay the loan off?): This will list the borrower’s plan for paying off the loan, such as through refinancing or selling the property.

Use of funds: (Please provide brief breakdown of the loan needs): This will provide a brief breakdown of how the loan proceeds will be used, such as for purchase, repairs, or refinancing.

How soon needed by: (Is there a contract date we should know about?) This will indicate the date by which the funds are needed, such as if there is a contract date to close on a property purchase.

Insurance for Investment Properties: Get it Right!

This is THE MOST forgotten about thing for real estate investors.

You would think that insuring a property would be the most important thing real estate investors do but it’s usually the last thing they think about.

Don’t wait until the last minute before you’re closing on a property to consider the insurance.

Here are some tips for making sure your property is insured properly

  1. Get the right type of insurance for your specific investment property., e.g. vacant dwelling versus landlord/tenant
  2. Dwelling Replacement Coverage: Don’t cheap out, make sure your coverage is adequate. If the cost to build the home new in your market is $250 per square foot, make sure you insure your property at $250 per square foot. If there’s a loss you won’t be able to rebuild the property because the dwelling replacement coverage is not enough to rebuild the property.
  3. Rehab? Make sure your policy has builder’s risk and liability to protect your improvements and protect you from liability if someone is hurt on the job site.
  4. Addtl Coverage: Is your area prone to flooding or earthquakes and does your insurance policy cover those?

This is your life savings in most cases that you’re putting into these properties. If anything your properties should be OVERinsured and not underinsured.

Don’t fall short on your insurance!

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