Don’t Make This Deadly Real Estate Investing Mistake!

Transcription

This is Corey Dutton. I’m a private money lender. And today I’m going to give you a little “Real Estate Investing 101.” So, you’re a beginner investor, a beginner real estate investor.

How many investment properties can you handle?

Don’t take on too many projects and so you will prevent yourself from crashing and burning. I see this happening all the time, new real estate investors that have a one size fits all mentality. And what do I mean by that? I mean that they look at other real estate investors doing multiple deals simultaneously and they say, “That’s what I have to do. That’s where I have to be.” And that’s not true.

One size doesn’t just fit all. Not in real estate investing. And this is the biggest mistake that I see beginning real estate investors make, which is, taking on too much and not having enough cash flow to support the multiple deals that they have going on simultaneously.

There’s a lot of real estate investor education out there that encourages you to be able to quit your day job and have multiple projects going on simultaneously so that you can’t be a full-time real estate investor. The problem with that is, again, the “one size fits all” mentality.

That may take you five years to do, where it may only take “Ed” the guy over here a year to do. So, keep that in mind. Don’t drink the kool-aid that you’re getting from these real estate investor education courses that push you to become a full-time real estate investor before you’re ready.

The Story of a beginner real estate investor who crashed and burned.

Seth is a beginning real estate investor who came to us for a hard money loan to fund his first rehab deal. We funded that rehab purchase for Seth, and we funded a few deals after that for Seth, and on every one of those deals, Seth made money. But after about the first year, Seth decided that he had to be like those other guys, he had to do it.

And so what did he do? Seth took on too many projects at once. And what happened? How did that happen?

So in this story, Seth purchased one rehab that we did a loan on, and that rehab took forever to sell. There was just something about that property, and it just kept falling out of contract. Meanwhile, while he was rehabbing and trying to sell this property, he purchased two more properties!

So Seth had three rehab projects going on, with three different hard money loans. So what happened? I mentioned to you, that the first property that Seth had purchased was not selling, it was taking forever to sell and had fallen out of contract many times.

Well, Seth’s plan, his “exit strategy” was to get the funds from that first rehab and use them to rehab the other two properties.

But when that property, that first property didn’t sell, Seth quickly found himself in a downward spiral. And why?

Because he had three hard money loans on three different properties, one of them wasn’t selling, one of them wasn’t rehabbed yet, and the other was also still sitting.

And when you have a hard money loan on a property, you’ve got a monthly payment. Not only that, but you have a cost of hazard insurance.

So, you’ve got three major expenses in these rehab projects:

• Rehabbing them,

• Making interest payments on the hard money loan that you use to purchase the property,

• Keeping insurance on these properties.

• Not to mention all the utilities and other expenses associated with maintaining these properties while you own them.

So what happened to Seth in this example?

The first house wasn’t selling, he didn’t have money to rehab the second and third project, he didn’t have money to make payments on the hard money loans, and he didn’t have money to make the insurance payments. So the houses weren’t even insured!

So, the lesson learned here with this story about Seth is, don’t take on too many projects unless you know you’re going to have the cash flow to support the rehab, the interest payments on the hard money loans, and the insurance payments at the bare very bare minimum.

So if you’re a first time real estate investor, and you’re going out looking for hard money loans to purchase your rehab properties for “fix and flip,” remember the story about Seth, don’t take on a “one size fits all” mentality and end up in that position where you do not have sufficient cash flow to support the projects that you have on hand.

How do you calculate loan to value ratio?

Loan To Value Explained

Video Transcript

I’m Corey Dutton and I’m a lender, today I’m going to talk to you about a term that is commonly used in lending, whether you’re a borrower or a lender. The term is “loan to value” or “LTV”.

What does Loan to Value mean?

You’re going to see that term a lot when you’re looking for a loan. And what does that mean? “Loan to Value” is simply the amount of the loan divided into the value of the property.

I’m also going to tell you why that’s important to the lender and to you in a minute. But let me go into an example super quick about how to calculate that.

How to calculate LTV Ratio?

I mean, how in the world do you calculate the loan to value ratio? Let’s just say that you are getting a loan for $50,000 USD. And what’s the value of the property?

Let’s say the value of the property is $100,000 USD. How are you going to calculate the loan to value or the “LTV”?

In this case, we’re going to take the $50,000 loan amount that we’re trying to get, and we’re going to divide it into the value of $100,000. And that’s going to give us: 0.50 or 50%. So, that’s a “50% loan to value” loan. When you you’ve got a loan amount of $50,000, and the value of the property is $100,000. Now why is that important?

Most of you are just shaking your head going, “So, now what?” What does that all mean to me as a borrower? And what does that mean to a lender?

What is a good loan to value ratio?

Well, let’s do another example super quick, 50% loan to value. You have no reference point. It’s hard to tell, is that good? Is that bad? Let me give you another example. Let’s say you’re taking a $90,000 loan against that $100,000 value property.

You’re going to divide $90,000 into $100,000, and that’s going to give you: 0.90 or 90% loan to value. So, you’ve got an LTV way down here at 50%, and you’ve got an LTV or loan to value way up here at 90%.

How does LTV affect interest rates?

Why is that important and why does it matter? Well, the lower the loan to value, the lower the cost of the loan, and why? Because the lower the loan to value, the lower the perceived risk of the loan by the lender. And on the other side, the 90% loan to value loan is a higher risk to the lender.

The higher the loan to value, the higher the risk to the lender. The lower the loan to value the lower the risk to the lender. And how does that translate to you as the borrower?

The lower the risk, the lower the cost of the loan or the interest rate.

The higher the risk, the higher the cost of the loan, and the higher the interest rate.

Beware of Hard Money Lenders With Bank Like Requirements

Avoid hard money lenders with bank-like requirements and bank-like sluggishness. When you want a hard money loan, you’re thinking speed, less hassle, and asset-based lending.

Many hard money lenders have strict requirements like banks, and move as slow as a tortoise!

Why pay the higher interest rates associated with hard money loans if your lender acts just like your banker?

Forget about it! If you are working with a lender like this, find another hard money lender!

Watch the video and see why

Video Transcription

This is Corey Dutton, I’m a private money lender, and today I’m going to talk to you about hard money lenders that act like banks.

These are the type of hard money lenders that you just want to avoid! A hard money loan is called such because it’s an asset-based loan against a “hard asset,” and a hard asset is any asset that can be liquidated fairly quickly for cash.

So, you go out seeking a hard money loan and you expect 3 things: #1, You Expect Speed, #2, You Expect Low Documentation Requirements, and #3, You Expect a Loan that’s an “Asset-based” loan, e.g. the real estate.

So what I’m trying to tell you today, the lesson learned from this video is, look out for hard money lenders with requirements like a bank and tortoise-like slowness in closing your loan!

Requirements For A Hard Money Loan

The first thing you want to look at is their “list of requirements.” What are they? Are they a mile long, or are they really small, something that you can say, “this is great! This is kind of what I’m expecting” Beware of heavy documentation requirements.

Appraisals

The second red flag to look out for is a lender, a hard money lender, that’s looking for an appraisal. Now an appraisal isn’t necessarily a bad thing, but if you need to close your loan quickly, an appraisal could delay you by several weeks.

Find out how your Hard Money Lender is planning on valuing your property. Are they using an appraisal? And if they, are what is the cost and the turnaround time to get that appraisal back?

If you have to close next week, the likelihood of you fulfilling that requirement of getting that appraisal with the lender in time for your closing? Probably not going to happen.

The Lender Keeps Asking For More

And then the third thing that I want you to look out for is a lender that is scrutinizing every aspect of the loan, but really not paying attention too much to the asset.

A good example of this is a lender that just keeps coming back to you for one more documentation requirement after another.

Another example is a hard money lender that has unreasonable requirements. You know we talked about low documentation requirements, we talked about speed, we talked about something “hassle-free” something “asset-based,” right?

There’s a lot of hard money lenders out there that are online, that are fairly well-known, that you’re going to go to for a hard money loan and you’re going to find out that they are underwriting your loan exactly like a bank and their speed of funding is as slow as a banks’.

So what do you do when that happens? Find another hard money lender folks, don’t spend too much time, don’t waste too much time, with a hard money lender that’s not a true asset-based lender.

That’s the lesson learned here! Find a hard money lender that’s a true asset-based lender, that has low documentation requirements, that has a high speed of funding, and looks at the asset as the primary means of approving or denying your loan.

This is Corey Dutton, I’m a private money lender, and if you like this video please like it. If you have any questions, leave them in the comments section below.

7 Hard Money Tips That Will Keep You Out of Trouble

Video Transcription

I’m Corey Dutton and I’m a private money lender. Today I’m going to give you some “Hard Money 101.”

This topic is about, 7 Ways to Get Yourself in Trouble With a Hard Money Loan.

Hard money loans can be great! They can make real estate investors a ton of money. But if you’re not using these loans properly, they can get you into a lot of trouble.

Let’s talk about  7 ways that hard money loans can get you into trouble:

#1: The lender not funding and losing your earnest money:
This a huge way that you can get into trouble. You go to a lender and you’re depending on this hard money lender to fund your loan by your deadline or you’re going to lose your earnest money. The lender drags its feet, wastes a ton of time, and then declines your loan. If this is a purchase, this means that you’re going to lose your earnest money. That’s a huge risk. So make sure you’re aware of that when you engage a hard money lender on a purchase transaction that you need to close quickly.

#2: Paying Upfront Fees to a Hard Money Lender:
Paying upfront fees such as appraisal fees, inspection fees, attorney fees, and then never getting a loan? That’s a really fast way to get yourself into trouble with a hard money loan, particularly if you’re going out to multiple lenders trying to get a loan and each one of them wants an upfront fee. And then not one of the lenders actually funds the loan? This is a huge risk to watch out for when looking for hard money loans.

#3: Getting Involved With a Predatory Lender:
Let’s face it there are a lot of hard money lenders out there that just want to own your property. Their intent is that you will default on your loan, or that you will make some sort of mistake and fall behind on your payments, and then they’ll foreclose on your property. Their intent is that they’ll make all the profit on the property and not you!

There are a ton of private money lenders out there that are predatory. That’s one reason why you should be dealing with a professional or licensed private money lender if possible.

Do not mess with these random people out there who are not professional lenders that say to you, “Oh sure, I’ll lend you the money!” Because guess what? Those people are typically going to be the most predatory because they aren’t professional, legitimate private money lenders.

Let me give you 2 examples:
I know a borrower that was doing a flip. She had a loan with a hard money lender for 90 days. He didn’t give her any copies of the loan documents at closing.

And according to the loan documents, if she didn’t pay that loan off within 90 days, on day 91 she got slapped with a $15,000 fee!! So guess what? That lender just goes out and buys himself a new car on day 91. And then he tried to foreclose on her property after it was all repaired and ready for resale. This is a prime example of predatory lending at its finest! Watch out.

Let me give you another example. I had another borrower that borrowed money from an unlicensed private money lender that was in her real estate club. This was just some random business associate that the borrower met via the local real estate investment club. This private lender gave the borrower a hard money loan on a handshake for a 90-day loan.

The 90 days go by and this private lender slaps this borrower with an extension fee of 2 points a month, or 2 percentage points of the loan amount per month. On this loan, it was $5,000 a month she was paying in extension fees! The lesson learned is to be sure to read the fine print in your loan documents and watch out for predatory lenders like this! If they are not professional lenders or licensed, stay away! Sometimes you think you’ll get a better deal by getting a loan from a private individual, “friend,” or a business associate, but you won’t.

#4: Not Having a Solid Exit Plan to Pay the Loan Off in a Short Period of Time:
You’ve got to have multiple exit strategies on these loans because these are short-term loans with high-interest rates. Let’s say you don’t sell the property in the time that you think you’re going to sell it? Or, let’s say your exit strategy is to refinance the loan with another loan, and you can’t get approved for that loan?

Guess what? If you can’t pay the loan off in a short period of time you’re going to be paying an extremely high-interest rate for months, and months, and months. And eventually it’s going to catch up with you, eventually you’re going to fall behind on your payments, and eventually, that lender is going to foreclose on your property.

So make sure you have a solid exit plan and always know what you’re going to do if this happens, or that happens, in all different types of scenarios. Because you can’t just count on one exit strategy.

#5: Underestimating your Project Costs or Experiencing an Injury or Illness:
Let’s say you’re doing all of the work on the property yourself and it’s a rehab. If you hurt your back for example, and you’re the one that’s doing the work, how will you finish the project within your budget?

I’ve seen it happen. One of my borrowers was doing all the work himself. He didn’t have a contractor, he was in there doing all the sweat equity himself. Guess what? He hurt his back. He couldn’t go back on that job, and he couldn’t afford to hire a contractor to finish it, otherwise, he would go over budget. So he got himself into trouble quick!

I’ve also seen borrowers that underestimated their project costs from the start of the project, which is a very common thing that new real estate investors are going to do. And that’s a really quick way to get yourself into trouble with a hard money lender, because if the hard money lender is giving you rehab money and they’ve given you a certain amount for your rehab, and then you go over budget.

Where are you going to get the rest of the money to finish the project? Are you going to be able to go out and get another loan from somebody else? Probably not.

#6: Market Collapse:
If your plan is to buy a property and in 4 months, 6 months, after you fix it up and add a bunch of improvements you’re going to resell it. What happens if the market collapses in that time frame? That’s a huge way to get into trouble with a hard money lender because you are stuck paying on a high-interest rate loan. If you can’t sell the property for what you’ve got into it because the market collapses or someone lists a better house for less money on the same street? What will you do?

#7: Getting into Too Much Debt:
This is called “over-leveraging” yourself. Leverage is debt. So if you’re over-leveraged, it means you have too much debt.

I’ve seen borrowers take out a first, second, and a third mortgage on a  property to get it purchased and rehabbed. And then guess what? They’re paying the interest payments, interest payments are high, beginning to stack up, and then all of a sudden before they know it, they owe more money than the property is worth!!

With the interest and the fees you’ve paid to hard money lenders, there’s probably not going to be a lot of profit left there for you if you get into too much debt.

In conclusion, make sure you know what you’re getting yourself into when you take out a hard money loan. Please spread the word and share this video with someone that you know that may be out there looking for a hard money loan for the first time. Or someone that you know that maybe doesn’t understand all of these risks because it’s important to know what you’re getting yourself into with a hard money loan.

Like I said before, you can make a ton of money using hard money loans in real estate, but you can also get yourself into a lot of trouble if you don’t understand all of the risks.

If you have any questions or comments about this post or any of the risks I’ve discussed here, please leave your comments in the comments section below.

 

Beware of Broker Chains and Joker Brokers

Beware of broker chains and excessive broker fees. A “good” loan broker can get your loan funded quickly. (A broker is someone that takes your loan directly to the lender to get funded). A “good” loan broker is worth its weight in gold!

Any fee you pay to a “good” loan broker is money well spent. And why? Why not go directly to the lender? A good loan broker knows all the “real” lenders because the good broker has worked with all of the real lenders before. A good broker is going to submit your loan to multiple lenders simultaneously. And what does that do? That increases the chances that your loan is going to get funded!

Now what is a “bad” broker that you want to stay away from, and why are they bad? Let me tell you more. A “bad” broker, I like to call them “Joker Brokers.” A bad broker doesn’t know who the “real” lenders are. A bad broker is going to just take you to another broker, and then that broker is going to take you to another broker, and then that broker may or may not be connected to a “real” lender. So, before too long, that bad broker is going to get you involved in what’s called a “broker chain.”

Now what is a broker chain? You may or may not have heard this term before, but it’s exactly what I just described. You go to a bad broker and this broker doesn’t know who the real lenders are. They haven’t closed loans with any real lenders. They think that brokers, other brokers out there who are actually brokers, are the real lenders. So they’re taking your loan request to a broker, who then takes it to another broker, who then takes it to another broker, and that’s your “broker chain.” It’s a chain of brokers.

So what’s bad about that? Well guess what? You have to pay every, single one of those brokers a fee in that broker chain. And that’s why they’re bad. So if you find out that you’re in a broker chain?  Fire those brokers and start over.

Paying Excessive Broker Fees

This brings me to my next topic which is paying excessive broker fees. Watch out for excessive broker fees. This is where I’m going to talk a little bit more about the “Joker Broker.” And why do I call them Joker Brokers? Because as a private money lender these brokers are pure comedy, they are just laughable. Let me give you an example.

I had a broker come to me to fund a deal. He sends me 15 different e-mails in a row about this loan request.  And in the subject line of every, single email, there were the letters “FW:” (which means “forwarded”). The broker had forwarded those 15 e-mails directly from the borrower, and each one of those e-mails had infinite number of attachments. But guess what? In all that information the broker sent me, there wasn’t even a loan amount listed! I couldn’t even find the property address!

After hours of sifting through these 15 different e-mails, I went back to the broker and I said, “Yes, we’re interested in the loan, can you tell me a little bit more about this deal?” The Broker didn’t know anything about this loan! Nothing. He went blank! But the best part? Within a few minutes he emailed me yet again, and this time he sent me his “fee agreement.” I opened it up and I just about fell off of my chair. This is where the comedy comes in. This is where I say these joker brokers are just laughable.

Guess what it was? It was 5 loan points he wanted as a broker fee! 5% of the loan amount as a fee for forwarding me a bunch of e-mails from the borrower, and not knowing one snippet of information about the loan request! (It was a $3.5 MM loan amount with a fee agreement of 5 points, 5% of $3.5 MM is a $175,000!) He had done no work, he had just forwarded me all of those emails with attachments from the borrower directly. The broker didn’t even know the loan amount, or the property address, off the top of his head when I called to discuss the loan with him.

So I laughed in his face. And you know why? Because I don’t want to deal with a borrower that would sign such an agreement and pay a lazy broker like that an excessive fee. Why? Because it proves they’re stupid. And if you do the same thing when you’re out there looking for money, you’re probably going to get laughed out of the room just like he did. Let me give you another example of a joker broker.

These joker brokers send me e-mails and they’re attaching all of this sensitive information, private information, about the borrowers. And in these email attachments you’ve got social security cards, you’ve got driver’s licenses, you’ve got tax returns! This is sensitive information! Most asset-based lenders don’t even ask for that stuff until they’ve preliminarily approved the loan request, if at all. But these joker brokers, they’re sending this sensitive information to a private lender in the first e-mail, and guess what? Not even a loan amount listed! Not even a property address listed! Again, this is why I call them “Joker Brokers.”

If you’re looking for a loan, a “good” broker is worth its weight in gold. But a “bad” broker that creates “broker chains” and charges excessive fees is going to cost you time and a grip of money. And if you’re a borrower, and you’re out there looking for money, make sure you know what broker you’re dealing with, and determine pretty quickly, is this a “good” broker or “bad” broker?

And if you’re a broker that’s watching this, and you’ve taken offense because maybe you’re doing this kind of stuff? You might want to change your business model because it doesn’t work for private money lenders!

If you have any questions, complaints, or comments, please leave them in the comments section below. If you found this post useful, or you know someone looking for a loan that’s gotten themselves in this position with a broker, share this post with them!

 

Hard Money Interest Rates Explained

Video Transcription

Let’s say you’re getting a hard money loan and the lender quotes you an interest rate between 12 to 14 percent. Whoah! That sounds insane doesn’t it? That sounds insanely high when right now the average interest rate from a bank is 4 to 6 percent. We’re talking 12 to 14 percent folks. That’s double digit interest rates, right?

Now let me explain to you how hard many interest rates actually work. Most of the loans that you’re getting from a hard money lender are going to be very short term in nature. Somewhere between 1 to 12 months.

So let’s say you only have that loan for 4 months. You’re buying a property, you’re fixing it up, and some at some point in the future, 4-6 months down the road, you’re going to resell that property.

So let’s say you have this hard money loan for 4 months and the interest rate is 12 percent. How do you figure that out? That’s 4 percent not 12 percent, 4 percent. So how do you figure that out?

You take 12 percent. That’s your annualized interest rate and you divide it by 12 months, that’s going to give you 1 percent a month.

If you hold the loan for 4 months, that’s 1 percent a month, so that’s 4 percent, not 12 percent.

Hard money interest rates aren’t as high as they seem to be. Sophisticated real estate investors know how to use hard money lenders to make more money. To make more money in their investments by getting these loans paid off in 4 to 6 months. To walk away with an interest rate that’s actually 4 to 6 percent. That’s on par with what banks are charging.

If you have any further questions for us, leave them in the comment section below.

 

What Is a Hard Money Loan?

Why is it called a hard money loan?

A hard money loan is called such because for any loan you must have some form of collateral. In order to get that loan and in this case it’s called a hard money loan because you’re using a hard asset. Now what is a hard asset? It’s any asset like real estate that can be liquidated quickly for cash.

Why do you get one?

Hard money loans are commonly used by real estate investors to either purchase or refinance real estate.

So who gets one this type of loan?

Well regular people, anyone who is seeking a real estate loan that needs to move quickly. Someone who’s seeking a real estate loan and may have poor credit, or no income to prove a higher high enough income to qualify for the loan.

Also anyone who has a piece of real estate and wants to refinance that piece of real estate and pull the money out and use it for other purposes such as for a business or investing.

Still have questions or looking for hard money loan? Leave your comments below. And if you found this useful Please Like and Share.

Hidden Fees of Hard Money Lenders You Didn’t Know About

Hard Money Lender Fees
unsplash-logoBen White

What happens if you arrive at a loan closing and discover some additional fees charged by your hard money lender on the settlement statement? Hard money lenders may have some additional fees, but they may not be “hidden” after all. A lender’s fees may be right there in plain sight, you just need to know where to look. So how do you find out all of the fees so that you can better compare options among lenders?

(Disclaimer: Watch out for any fees paid prior to a loan closing. This could be an upfront fee scam).

What are the most common fees charged by hard money lenders?
Every lender charges points, but points are not considered junk fees. Most hard money lenders disclose the points they charge, so points are typically not hidden fees either. It’s the “other fees” that a lender charges that may be junk fees.

For example, many lenders charge an underwriting fee, this is in addition to the points charged. Underwriting fees can be as high as $2,000, in addition to points paid to a lender. Other lenders may charge a legal fee or a document preparation fee at closing. These additional fees charged at closing can be anywhere from $500 to $1995.

And if you have a rehab loan with a repair funds escrow, there may be even more lender fees after a loan closes! For example, after a loan closing, a rehab lender will often charge a fee for each draw from a repair escrow for repairs to a property.

How do you find all of a lender’s junk fees before you go to the loan closing?
Look at the fees listed on a lender’s website, check your emails back and forth with the lender, look closer at the term sheet or letter of intent given to you by the lender. Are the lender’s junk fees somewhere that you may have overlooked until arriving at the loan closing? When it doubt, ask! Ask a lender to give you a list of all fees that are in addition to the loan points. Clarify which fees are charged upfront before closing, which fees are charged at the closing, and if any fees are charged after closing.

Do the numbers and compare your loan options
When comparing fees charged by different lenders, first make sure you know ALL of the fees that are charged by each lender. Total up all of the points and junk fees for each lender. Then compare your options side-by-side by using the fee totals for each lender. Which lender has the lowest, total fees?

Beware of upfront fee scams whereby lenders charge fees BEFORE a loan closing
As discussed previously in the ‘disclaimer’ above, always be wary of paying any fees prior to the actual loan closing and funding. There are a ton of upfront fee scams pushed by fake lenders who have no intention of making loans. These scammers are just charging upfront fees with the promise of giving a loan. But how do you spot these scams and avoid them? Check out a video we did on this topic called, “5 Red Flags to Spot a Loan Scam.” Watch that video to avoid getting involved in an upfront fee scam.

Also, make sure you close the loan at a title company, and never wire your funds directly to a lender. The title company will provide you with a final settlement statement at the loan closing that lists all of the fees and amounts. But the moral of the story, make sure you know all of the fees a lender is charging before you get to the closing table!

Do you have questions or comments on this topic?   Please leave them below.

Why Hard Money is Better Than Taking on A Partner To Make A Profit

hard money vs business partner

Aren’t the interest rates on hard money loans just ridiculously high? Why would anyone borrow hard money funds rather than take on a partner?

Let’s compare the cost of a hard money loan with taking on a partner. Then you decide what’s a cheaper option.

The first question to ask yourself is, how much of your final profit will a partner take? 35%? 50%? 60%? Let’s say you find a partner that will take 50% of your final profit. You’re better off using a hard money loan rather than use that partner. Here’s why:

  • Hard Money Loan for $100,000: Hard money loan interest rate = 12% annually. On a $100,000 loan you pay loan fees of 3% or $3,000 when the loan closes. Then you pay 1% per month ($1,000 per month) until the house sells. Let’s say it takes you 4 months to fix up and resell a house. The total cost of the money for that 4-month time period is $7,000. ($3,000 in loan fees + $4,000 in interest payments). Let’s say your profit is $23,000 on this flip. After the cost of the hard money loan, you’re left with $16,000 in profit.
  • A Partner loans you $100,000 and takes 50% of your final profit: Let’s say your profit is $23,000 on this flip. After you give your partner 50% of that profit, you’re left with $11,500 in profit. 
  • This is a difference of $4,500 over a 4-month  time frame. Over 6 months it’s a difference of $2,500.

The double digit interest rates charged by hard money lenders may seem high on the surface. But when you compare it with the cost of taking on a partner, it suddenly becomes a better option, doesn’t it?

Get to know all of the hard money lenders that lend in your area on a first name basis, so when the right deals do come along, you can take them down and make a profit! Want to know how you can get started using hard money on your next deal? Reach out to us today and let’s get started!

What’s the difference between a hard money loan and bank loan?

Many people have this question, especially if they’ve never gotten a hard money loan before. So I’m going to tell you the biggest differences between a hard money loan and a bank loan.


What’s the biggest difference?

The speed. A Hard Money Loan is known for its fast approval and it’s fast funding timelines. The time from when you apply for the loan initially, until the time that it funds, is MUCH faster than a bank. Sometimes we can even fund in 24 hours!

Typically a bank loan is going to take you anywhere from 4 to 6 weeks to get closed, and sometimes longer depending on the transaction, especially if it’s a commercial property that’s underlying the loan.

What’s the second biggest difference between a hard money loan and a bank loan?

Your requirements needed for a hard money loan. The requirements for approval are far less than they are for bank loan.

A hard money loan is called that because it’s based on a hard asset. It is going to be the approval process for that loan is going to be based on the actual asset itself: e.g. the property characteristics and the value. A bank loan is based on the credit score of the borrower and the income of the borrower. Banks are going to look at the tax returns for the borrower’s income or they are going to look at the payment history on the credit report.

Hard money lenders typically don’t look at that credit reports or income. So it’s a totally different process with regard to how you get approved for the loan itself.

In summary, a hard money loan is a lot faster, from the time you apply until the time you’re funded. A hard money loan has far less requirements than a bank loan because it is based on the “asset”versus your income or your credit.