Whether you’re a seasoned real estate investor or brand new to investing, you will – at some point in your career – need to turn to hard money!

Many people turned away from hard money except on the REALLY UGLY properties for much of the early 2000s or if they had pretty beat up credit. This was because conventional lenders were giving money away for all intents and purposes! Virtually anyone ““ first time home buyer to seasoned investor ““ could get 100% financing on their properties and it didn’t seem to matter how many properties one had!

Well”… welcome to the new market: The “conventional” lenders (like Chase, Indymac, Countrywide, etc.) have tightened their reins, and for good reason!

Before we go into how to get hard money, let’s talk about some of the pros and cons of hard money versus conventional financing!

Pros

• Hard money lenders look at the property first and the borrower second.
• Hard money lenders will loan on UGLY HOUSES that conventional lenders won’t touch!
• Hard money lenders will often give you 100% of the purchase price PLUS all ““ or a portion of ““ the repairs.
• Hard money lenders will lend between 50% – 80% of the AFTER REPAIR VALUE.
• Hard money lenders tend to know your area – and the local real estate market – and can keep you from making a mistake when you buy.
• Hard money lenders can close quickly – sometimes in as little as 3 to 5 days.
• Hard money loans are usually interest only.

Cons

• Hard money loans tend to have higher interest rates (11% – 16%+)
• Hard money loans often charge more points (1 point ““ 5 points)*
• Hard money loans have shorter repayment terms (6 months ““ 1 year)
• Hard money lenders can be more conservative in softer markets

Now that we’ve covered the majority of pros and cons to hard money loans, let’s look at what we can do to get better rates when we do need to get these types of loans. And”¦ it all comes down to organization!

Understand that hard money lenders turn away dozens of deals every single day and if you’re just starting out and it’s your very first deal, they’re going to be a bit more conservative on your first loan. So, it’s important to show them that you’ve got a plan, you know what you’re going to do and that their money is not “at risk” with you. Hard money lenders DON’T want to foreclose on you”… they don’t want your property”… They want you to make money, pay back the hard money loan and do it again.

The faster you can pay them back, the more money they’ll make. Look at it this way:
Let’s say you find a lender that’s willing to give you a $100,000 hard money loan at 3 points and 15% interest. So… they make $3000 on the loan up front (3 points = 3 percent of the loan). Next, each month, they make $1250 in interest. At the end of the year, they’ll make $18,000 on the loan.

BUT… if you pay the hard money loan back in 6 months and do it all over again, they make $21,000 on the same $100,000 because they’ve charged the points twice!

So, if you can show them that you are going to get them their money back – FAST, they’ll be more likely to work with you – AND to give you better rates. By following this process, I’ve been able to get hard money loans with 0 points, 11% interest rate, and no payments until the property sold.

Provide the lender with a detailed property report. In it, include the following information:

1. Property photos
2. Purchase Price
3. Description of property
   – Description of neighborhood
   – Justification of why this is a “great” deal
4. After Repair Value
   – Justify it with at least 3 sold comparables and 3 on the market
   – It’s best if you go with the lower ““ more conservative numbers
5. Detailed plan for the property
   – Work to be done
   – Estimate of repair costs
   – Schedule of repairs
6. Marketing plan for the property including:
   – Commissions for Realtors® (Even if you’re going to sell FSBO, calculate 3% for the buyer’s agent in the event they bring you a buyer). It’s better safe than sorry
   – Closing costs
   – Seller concessions, if applicable
7. Financials
   – Purchase price
   – Closing costs for purchase
   – Holding costs including interest, taxes, insurance and utilities
   – Closing costs for sale
   – Estimated net sheet based on best, worst and likely case scenarios

The bottom line is this… there are just some deals that you will have to use hard money on. (Sure, you can find private lenders and get lines of credit> once you’ve built some experience, credibility, and credit,but the majority of people just getting started in real estate will need to use hard money until they have built up their credibility and often, their credit).

Not to mention… if you use this same format, you will be able to get private lenders faster too, which will reduce your costs of money and increase your profits!

*1 point is equal to 1 percent of the loan amount

Written by: Heather Seitz, the co-creator of the Fixing and Flipping software, the fastest and easiest way to calculate repair costs, holding costs and closing costs for real estate investors.