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Hard Money Loans – The Dos and Don’ts!

Hard Money Loans – The Dos and Don’ts!

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Home Page > Finance > Loans > Hard Money Loans – The Dos and Don’ts!

Hard Money Loans – The Dos and Don’ts!

Posted: Oct 10, 2011 |Comments: 0

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First off, hard money loans are basically equity based lending. It’s lending based upon the equity of whatever the collateral is and not based upon the individual primarily.

The purpose of a hard money loan is to have easy access to capital and it is basically not hard. It is called hard because it is based upon collateral, not based upon the individual.

Really, the essence of getting a hard money loan is very simple. Its only one factor and that factor is having a good deal. That’s all.

If you have a good deal, getting a hard money loan is easy. What I mean by having a good deal is that the deal has equity. So, there should be equity in a deal.

If you are buying a property and there is really no equity in it or there is no profit margin or room in it, there is no way you are going to get a hard money loan.

Hard money lenders are looking at the margin. They are saying what’s the property worth and what I am going to be into it because if I am into a property that is lot less than it’s worth, then that’s give me security. This means that I am willing to lend money, not knowing who the borrower is or not knowing the details or not caring as much like a conventional loan would.

What you have to realize is conventional loans care about the individuals, not necessarily about the collateral. The only thing that they are caring about is that the property is worth, what they are lending.

For example, if you are buying a property for 0,000 and if the property appraises for 0,000, a conventional lender is going to be happy doing that type of a loan. But a hard money lender is absolutely not.

A hard money lender is going to be into that 50, 60 or 70% or ,000. If you are getting a hard money loan, the most they want to be in that loan is 50-70,000 dollars.

Whereas, if you are getting a conventional loan, they would be willing to go up to a 0,000, if you are using a scenario, where the property is worth of 0,000.

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That’s the scenario when it comes to hard money lending. Hard money lenders are looking for good deals.

The reason you want to get a hard money loan is because you want to purchase a property that may not be in a great condition or you want to purchase a property as an investment or there is an opportunity that came up that you really want to take advantage of.

The key in getting a hard money loan is to have a good deal and so many people miss this point.

Now, how do you know if you have a good deal or not? This is how a hard money loan is going to look at if it is going to be a good deal or not.

The first thing that they are going to do is they are going to draw comparables and they are going to look at three solds or three actives in the immediate neighborhood.

They are going to look and say what has been recently sold in the last couple of months with similar square footage and in similar area and what is currently for sale within the similar square footage in similar area.

Sometimes they look for the four actives or four solds. But here is the key; so many people are looking at the most expensive rather than the least expensive.

When you are getting a hard money loan, they are going to be looking at the least expensive four homes that have been sold in the neighborhood or the ones that are currently available in the neighborhood.

Now, they are going to be in a light condition. So, if the house is in fix up condition, they want to use comparables that are in the fix up conditions.

If they are not planning on fixing up a home, they are not going to use that. So, there’s going to be a comparable situation to what’s that going to be turned into.

The other thing I want to talk a little bit about is imaginary situations. I was talking with a father the other day and he was speaking about his son. His son was always asking the question, why. It was just crazy. He had three daughters and one son. The son keeps asking why, why, why all the time.

He said, “You know Ryan, it was frustrating at times because he kept asking why and sometimes I didn’t even know the answer, why he was asking why? Although it was frustrating but I love that how inquisitive he was because he wanted to know the answers of everything, which was fantastic.”

The problem with asking to why when it comes to hard money loans situation is that the imaginary situations are not going to get you money.

You find a lot of people who wanted to ask why question for no reason. Whereas, if they actually have a good deal or if they go find that property, it is going to be a lot easier to get something happening.

So, what I am saying is that imaginary situations will never make you real money. The focus on that is to try and get real life situations to get real life answers because you can ask the question why forever and it is going to delay your progress in being a real estate investor or delay your opportunity in getting funding.

It is really best when you come you have an opportunity that you need.

The other thing that I want to talk to you about is that the good deals always get funded.

There are so many people that are worried if they are going to be able to get funding or aren’t able to get funding. If you look around, there are many things that are getting funded.  

There’s money for a good project. There’s money for something good. There’s a lot of money out there and lots of people think there’s limited amount of funds or there are constricted funds.

What’s not constricted is the amount of money but what’s really constricted is the thought process or the vision for the people that actually have that money.

If you have a good deal, it would be easy for someone to see that vision and it is going to be easy for hard money loans to take place.

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If you are planning of making a real estate investment and is looking for hard money loans, then try to find a good deal first.

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Article Tags:
hard money loans, hard money loan, hard money lending, hard money, hard money lenders

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