Hard money lenders exist because they underwrite radically differently from conventional lenders. They take more risks, think outside the box, and finance the properties that conventional lenders cannot touch with a ten-foot pole. This flexibility allows private lenders to overcome obstacles that will leave a conventional loan dead in the water, including distressed collateral, low borrower credit scores, no verifiable income, and even certain title defects.
Hard Money Blog: Invest, Revitalize, Create, Prosper
Defects in the title of a residential property refer to any issues or problems that affect the legal ownership or rights associated with the property. Such defects result in what is called a “clouded” title. The opposite of the clouded title is a “marketable” or “clear” title, which refers to a title free from reasonable doubt or defects.
A marketable title reduces the legal risk associated with the property in several ways. First, it assures the buyer that the seller has a legal and undisputed right to sell the property. It also gives buyers confidence that they are acquiring a property without hidden claims or encumbrances, minimizing the likelihood of future legal challenges. If you plan to finance the property with a lender, all lenders, including hard money lenders, will require a marketable title before providing financing. A clear title assures them that the property is sufficient collateral for the loan, reducing the lender’s risk.
A part of our business comes from refinancing inherited properties. A typical scenario includes an heir who either wants money to pay off other heirs or needs renovation funds to increase the property’s value before flipping it. Often, they want to do both. Private lending criteria fit their needs perfectly. Hard money lenders like us lend on properties that require extensive renovations and are not focused on the borrower’s income or credit scores. Inherited properties often come with plenty of equity, reducing private lenders’ risk and making the pre-qualification process fast and straightforward. There is one condition, though: the inherited property must be out of probate.
Hard money lenders have significant discretion in choosing whom to lend to. Unlike traditional banks or financial institutions that have strict lending criteria and standardized underwriting processes, hard money lenders are private individuals or smaller-size companies that operate with more flexibility. The decision to lend to a particular borrower depends on the transaction itself. Among key elements of this transaction are its overall profitability, the strength of the collateral, and the risk involved in a particular rehab project. These are the tangible aspects best measured by math and underwriting formulas such as loan-to-cost ratio. The intangible aspect of the transaction is how a private lender feels about a particular borrower.
Tracking expenses is a fundamental aspect of effective project management in real estate renovation. It helps you maintain financial control, make informed decisions, and ensure the success and profitability of your investment. In this article, we talk about many benefits of efficient cost tracking and share very practical tips on how to do it without overwhelming yourself.
The home renovation process is more complex than it looks on HGTV. The difference between someone with construction experience and those just starting out is that experienced folks know not to count on the best-case scenario. They understand that the construction delays will happen. Your goal as a real estate investor is to anticipate those delays and be ready for them.
So, let’s talk about the primary reasons for delays in home renovations and how to manage them effectively.