Flipping houses has grown in popularity over the last decade due to the many television shows that depict this real estate investment process as a fast and straightforward way to make a massive profit. But what the shows never explain is how these new real estate investors get the Fix and Flip Loans they need to buy properties. And this is by far the most critical step in the buying process. Learning about your borrowing options and how to secure funding is your first big step in becoming a successful real estate investor.
Flippers are looking for homes that are in disrepair or have been through the foreclosure process. This is how they can invest a little time and money to turn a nice profit. But the downside to these run-down properties is that banks and traditional lenders see them as a high risk. Banks know that the flipper will need money and experience to make the deal profitable. So, these conventional lenders tend to avoid funding flippers. So, when you want a Fix and Flip loan, you better know about alternative lenders.
Hard money lenders are legitimate private lenders who are almost always willing to fund Fix and Flip Loans. There are a few reasons that hard money lenders don’t mind the added risk of a flip. First, they are basing the loan on the value of the property and then requiring that the property be the collateral for the loan. This system gives them security if you default on the loan. Second, the lender requires a relatively high down payment so that there is instant equity in the property. Again, this provides security for the lender in case you default on the loan. He or she sells the property and gets back the invested funds and sometimes even more than you owed on the loan.
What you need to know as a borrower is that you will pay for the opportunity to borrow from a hard money lender. And the rates are going to be higher than those offered by a traditional lender. The interest rate could be in the 12% to 20% range or even higher if the down payment is low, or the profitability of the deal is questionable. You are also going to pay points on the loan. Each point is 1% of the loan amount. And in some cases, there are processing fees that you will need to pay before the loan is funded.
The great thing about hard money is that this is a loan from a private lender. That means that the terms of the loan are at the discretion of the lender, so he or she can be flexible. You might be able to negotiate terms that are tailored to meet your needs or that save you some time and money. But the most significant advantage of hard money is that the loan is fast and simple to secure as compared to a traditional mortgage or loan from a bank.
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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 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.