The trouble facing most real estate investors who want to enter the fix and flip business is finding the money to purchase property. Short-term financing through fix and flip loans is available in a variety of forms, each with its own advantages.
Private money lenders usually takes the form of loans from family or friends. If you are able to offer a return on investment that is better than what these potential lenders can expect from low-risk investments such as interest from a money market account interest or certificates of deposit, they may be willing to lend money at a relatively low interest rate. These investors are willing to lend you money based on your established relationship and good reputation, meaning that there is more riding on the success of your flip than money alone. However, if you are able to take the money and flip a home at a profit to your investors and to yourself, you may be able to establish an inexpensive source of capital for future flips.
Hard Money Loans can be more expensive than private money loans, but they do have some great advantages. For one thing, hard-money lenders may allow the complete cost of renovation added to the loan, and many will write the loan based on the expected value of the house after it is rehabbed. Often this means that the loan amounts to more than the purchase price of the home, allowing the investor to build a budget for repairs in the loan. The primary disadvantage of these loans is their price, which after points and interest make them an expensive financing option. Additionally, many lenders want to see that you have invested some of your own money in the purchase because it reduces the likelihood that you will walk away from your money—and theirs—should something go wrong while fixing the home. Don’t forget, this is Hard Money Loans can be funded quickly and save a deal that has high potential.
Unlike most banks, which quickly sell the loans they make on the secondary market, portfolio lenders retain ownership of the loans they write. This gives them greater discretion when deciding whom they are willing to lend money. For this reason, establishing a good relationship with a portfolio lender can be of value to real estate investors who wish to hold several properties simultaneously. The rates portfolio lenders charge for using their money, while not as low as those from most private-money lenders, are typically much lower than what hard-money lenders demand. The down side will be the time required to underwrite the loan and these lenders generally require substantial documentation from the borrower.
Dennis Dahlberg Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.