Hard Money Blog: Invest, Revitalize, Create, Prosper

Do Hard Money Lenders Check Credit?

April 23, 2020 by Kyle Sennott Leave a Comment

If you are a real estate investor looking to finance your next property using a hard money loan, you are likely to have some questions. You probably know that hard money lenders work differently from traditional lenders in many key areas. But how do they look at credit? Can you qualify for a hard money loan if you’ve had some lates in the past? Alternatively, would your application be considered more favorably if you have a high credit score?

A credit check is required by many lenders.

The majority of hard money lenders do check credit because they want to understand whether you have a history of paying your obligations on time or not. Borrowers with a successful track record of managing their debt in the past, are more likely to do so in the future. Serious offenses such as IRS liens, recent bankruptcies, and current lates on existing mortgages could be a kiss-of-death. When it comes to the rest of your credit history, much depends on each lender’s unique underwriting criteria and their overall risk tolerance. The main difference between private lenders when it comes to credit history is whether they require a minimum credit score to pre-approve you for a loan. Many lenders choose to have a minimum credit score because they prefer to avoid lending to certain types of borrowers and want to make it easier for their underwriters to identify them.

Can I get a hard money loan with bad credit?

Certain hard money lenders are more amenable to working with borrowers with poor credit. Some of them look beyond credit scores and make their underwriting decisions based on the overall strength of a borrower. They might factor in your track record as a real estate investor and how much of your own money you are willing to invest in a transaction. In other words, if you have dings on your credit, you might be able to compensate for them by showing strength in other areas.

How to get pre-approved without stellar credit?

If your credit is not the best, you can consider both short-term and long-term strategies of overcoming its negative impact. In short term, you can look for a partner with a better credit history than yours. It could be your spouse, family member, or a friend who believes in your ability to make money in real estate and doesn’t mind guaranteeing a loan needed to finance your next endeavor.

Another way to overcome bad credit is to invest more of your own funds. From a lender’s perspective, the more money borrowers invest, the less likely they are to be late making a payment or to default. Increasing your own investment means you’re putting your money where your mouth is and is a perfect antidote to spotty credit history.

The long-term strategy should focus on building a good foundation for your rehab business. Real estate investing is not a cheap business to be in. To succeed, you need to have enough money to make an initial contribution to the transaction and enough in reserves to make monthly payments to the lender, to cover insurance and taxes and to meet any other unexpected expenses associated with owning a property. For example, you might want to start with allocating a certain amount of funds each month towards your real estate investing plans.

In parallel, you can work on improving your credit scores by paying down some of your current debts and fixing any accuracies on your credit report. You might consider hiring a reputable credit repair firm to help you do it as efficiently as possible. Their services are not expensive and can help increase your score as fast as possible.

Can excellent credit scores help you get better terms?

Having an excellent payment history is a definite plus when it comes to qualifying for any type of loan. Whether you are able to get better terms on your hard money loan, depends on a private lender you are working with. Typically, private lenders determine their rates based on the overall strength of a borrower and while good credit history is one contributor to that strength, there might be other factors in place. Previous real estate investing experience and the overall borrower liquidity are just two examples of such factors.

New Funding Resources is a private hard money lender working with real estate investors in Maryland, Washington, DC, and Virginia. We do check credit but are not credit-score driven and underwrite our private loans holistically. We like to say that if a borrower is well-positioned to make a profit flipping a property, we will find a way to fund your transaction.

An update regarding Coronavirus (COVID-19) from New Funding Resources

March 19, 2020 by Kyle Sennott Leave a Comment

As our country navigates this health crisis, New Funding Resources is operating normally and is implementing measures to prevent any potential disruption to you, our valued clients. We continue to service our loans and monitor construction projects as normal.

Over the past week, clients have called and asked how this crisis could impact the real estate market. We are hopeful it will pass, as interest rates for conventional and FHA loans remain low. Since the typical exit strategy for fix-and-flip or fix-and-rent investments depends on these rates, it should provide some insulation from market volatility. Also, both New Funding as the lender and the borrowers we work with have chosen to focus their energy on real estate projects that are affordable for most Americans – projects that offer the most stability.

There is no higher priority to New Funding Resources than the safety and confidence of clients and employees. We are monitoring this developing situation closely and will post updates during this evolving situation.

Don’t hesitate to reach out if you have any questions. Meanwhile, we are continuing to fund real estate deals.

What is the average interest rate on a hard money loan?

March 5, 2020 by Kyle Sennott Leave a Comment

The average interest rates on a hard money loan vary from private lender to private lender but generally are between 9% and 14% annually. If it sounds high for you, keep one important thing in mind: hard money lenders fund the type of loans that conventional lenders (such as your bank or credit union) will not touch with a ten-foot pole, no matter how much you are willing to pay them. The truth is that the average interest rate on a hard money loan reflects the high risk that a private lender takes by financing the transaction.

New Funding Resources is a private hard money lender that works exclusively with real estate investors in Maryland, Washington, DC, and Virginia. We offer a winning combination of competitive rates, outstanding service, and local real estate expertise. To find out more about our programs, call us at 240-436-2340 or fill out the Contact Us form on the right of this page.

Real estate flippers are focused on different types of homes: those in various stages of disrepair. Those disrepairs might range from those requiring cosmetic modernizing to the full gut-jobs. Regardless of where they are, conventional lenders are reluctant to finance them leaving investors with four choices: finance them entirely with their own cash, get a partner (and split the profits), use private financing or, finally, sit on the sidelines watching other people make money.

“The average interest rate on a hard money loan reflects several risks undertaken by a private lender: the poor condition of the property, the high leverage offered, and more inclusive underwriting.”

The average interest rate on a hard money loan also reflects another risk private lenders take: the amount of leverage they provide to their borrowers. Hard money loans are often based on the after-repair value of the property – a value that is presumably significantly higher than a purchase price. Depending on the spread, a private lender often ends up financing close to the entire purchase price and then some. Think about it: a conventional lender will not finance ANY percentage of the purchase price. A private lender will take the risk of financing 100% of it or, in some cases, even more.

Another way of how hard money financing allows real estate investors to compete with all-cash offers is its streamlined underwriting. A well-run hard money lender should be able to close their loan as fast as a cash buyer. Underwriting criteria vary from private lender to private lender but, in general, it’s significantly less stringent than with conventional lenders. For example, we at New Funding Resources don’t verify your income and are not credit score driven. The streamlined underwriting process private lenders offer levels the playing field between those with very deep pockets and those who might not have enough of their own funds to buy a property outright. However, the more relaxed the underwriting, the riskier it is. This is yet another reason why the average interest rate on a hard money loan is higher than conventional interest rates you might be used to.

Despite offering real estate financing that is inherently high-risk, hard money loans should not be confused with subprime loans of the yesteryear. Hard money cannot be used to finance owner-occupied homes and is reserved exclusively for investors. It’s a short-term solution designed to help acquire and rehab an investment property. Once the renovations are complete, there should be no reason to hold on to private financing. Most borrowers repay their hard money loans by either selling the property or refinancing it within twelve months of origination.

The average interest rate on a hard money loan might be between 9% and 14% but the ultimate rates depend both on the lender and the borrower. With us at New Funding Resources. the stronger the borrower profile is, the better the rate he or she can qualify for. Remember, when it comes to doing business (regardless of whether you are a lender or a real estate investor), it’s all about the risk and managing it accordingly.

New Funding Resources is a hard money lender that helps real estate investors generate income and build wealth by rehabbing homes in Maryland, Virginia, and Washington, DC.

Still have questions about the average interest rate on a hard money loan? Ready to find out what you can qualify for? Call New Funding Resources today at 240-436-2340.

DMV Real Estate Market. Presidential Election. 2020: What the Future Holds.

January 20, 2020 by Kyle Sennott Leave a Comment

As I write this blog, a new year has started. January is the time to reflect on the past and what we accomplished during the last twelve months. It’s also the time to start planning for the future. 2020 is bound to be an eventful year. A lot of things are up in the air. Congress is impeaching the President. We’re in trade wars with China and others. The Presidential election is upon us and, whatever side you’re on, you must agree that it’s not going to be a smooth and orderly process. We can’t predict the future, but based on my recent conversations with our clients, many are looking at 2020 with an increased sense of trepidation. They are worried about the impact of the upcoming Presidential Elections on the economy and the real estate market in particular. How can we get prepared and better yet – how can we leverage that uncertainty – as real estate investors?

First of all, let’s admit: the last several years have been pretty good for us in the real estate business. For those of us investing in Maryland, the home prices have been steadily increasing since 2012. Regardless of how you feel about Trump, his Presidency has been good to real estate investors – at least so far. We’ve got tax breaks both as real estate investors and business owners. Perhaps most importantly, for better and worse, he’s been successfully pressuring the Federal Reserve to keep interest rates low. If you’ve been in the real estate business for a while, you know that it’s the low rates that fuel the activity and the growth in our sector.

However, if there are lessons that we’ve learned about the real estate crash of 2008, it’s that whatever goes up must come down. The economy is cyclical, and so is the real estate market. In my opinion, this is what’s fueling increased anxiety about 2020. After all, we’ve already had eight incredible years with the real estate prices growing as steady as clockwork. Aren’t we due for some lean ones by now? To throw the politics in the mix, if a Democratic President takes office, he or she is unlikely to hold the interest of the real estate industry as near and dear to heart as President Trump does. On the other hand, if Trump stays and continues to prop up the real estate growth, are we entering the same Faustian bargain of letting the short-term greed jeopardize the overall health of the real estate market as we did 15 years ago?

We can debate those issues until we are blue in the face. Instead, let me bring this discussion closer to home. We all know that real estate is local. What might be going on in the Florida or Arizona real estate market has little bearing on the DMV market. We are the area that is uniquely propped up by high-paying jobs that are directly or indirectly supported by the Federal Government. Yes, we’ve enjoyed years of steady appreciation, but the appreciation alone is no indicator of a real estate bubble. Appreciation is what real estate does, and this is why it’s a great way to build wealth.

If you read the real estate reports, the local real estate is hitting a new high virtually every month. For example, this October 2019 report from MLS boasts setting “new records” with the median price of $431K. However, it’s just a modest increase of 2.6% from last year. Since 2015, the DMV market had an overall appreciation of 7.75%. It’s nothing to sneeze at, but it’s not suggesting any bubbles bursting soon.

The inventory was low in 2019 and will most likely remain low in 2020. But it’s also nothing new: in the last years we’ve seen competition intensify. The years of when the only thing you needed to get a good deal is a pair of thermal underwear (so you would freeze your butt on the court-house steps during an auction) are well behind us. In 2020, just like in 2019, you need to rely on your own perseverance, marketing savviness, business skills, and luck to make the numbers work. But again, if you’ve done it already, you can do it again.

Coming back to the Presidential elections. The research shows that things do slow down around November. However, it appears that this slowdown is similar in nature to the Holiday season. The activity doesn’t evaporate – it gets pushed to the next month. As a hard money lender, we see this fluctuation every year: we have a slow December followed by a super busy January.

Still, what can you do to ensure that you continue to build wealth in real estate in 2020? I can think about at least two new strategies you can try next year, and you can read about them in our

next blog here

Make 2020 Your Buy-and-Hold Year

January 9, 2020 by Kyle Sennott Leave a Comment

In 2018 and 2019, we saw an increased number of transactions where our hard money loans were used to rehab and keep a home as a rental – as opposed to selling it right after the renovation is completed. Yes, we are talking about good ol’ buy-and-hold versus fix-and-flip. In 2020, I expect this trend to continue. If you’ve been previously focusing solely on flipping properties, now it’s time to consider the benefit of long-term investing.

As the DC-area inventory continued to tighten, so are the profit margins. The market is shifting and so should be your mentality as a real estate investor. A purchase price might not be discounted enough to justify flipping, but – under the right circumstances – might be low enough to get you a head start in building equity for years to come.

In previous blogs, we’ve talked at length what makes a good rental opportunity. To recap, there are two major factors to consider. One is the location and its long-term appreciation potential. Obviously, as a long-term real estate investor, you should be looking for a steady and consistent increase in value. The good news here that regardless of whether you are investing in Frederick, Laurel, Silver Spring or Manassas, the entire DMV area has the most consistent real estate appreciation in the nation.

The second factor is positive cash flow. At the very minimum, you want to make sure that your rental income is high enough to cover the expenses associated with owning a rental property. The experts rely on the measurement called the debt coverage ratio to ensure that the property can financially support itself. Interestingly, this is where the high prices in the DC area might work against you. Even with escalating rent prices, many homes might be just too expensive to generate that positive cash flow. Typically, those properties have a debt coverage ration of less than 1.25% and you want to stay away from them.

What’s equally important to understand is whether long-term real estate investing is the right strategy for you personally. Here are four factors to consider:

Make sure you have a solid refinance strategy. Once you’ve completed your rehab using our private money loan, you would need to pay it off by refinancing with a conventional lender. Conventional lenders are way more focused on your credit scores and your personal income than private lenders and not everyone qualifies. Talk to us before you decide to go the buy-and-hold route to make sure that strategy is right for you.
Buy-and-hold is an effective hedge against inflation and comes with substantial tax advantages. Unlike flipping, however, it’s unlikely to generate immediate income.
Unless you are getting an incredible deal, some of your initial investment will be locked in the rental property for years to come. If you’re planning to remain active in real estate investing, make sure you have a decent amount of money left to pursue other real estate investment opportunities. You don’t want to sit on the sidelines being cash-poor.
Being a landlord comes with responsibilities. Make sure you are ready (and have time) to deal with tenants and maintenance. One simple piece of advice: don’t buy a rental property that is too far away from your home. You don’t want to have a 45-minute drive just to check on a leaky toilet.

Truth be told, to be a successful real estate investor you have to pursue both long-term and short-term investing strategy. If you have a couple of flips under your belt, you might be to set your sights on accelerating your retirement. If you’re looking for a worthy New Year resolution, it might

be a winner that would benefit you for years to come.

New Funding Resources is a private lender in the DMV area that helps real estate investors to finance the purchase and rehab of distressed homes. Ready to try the buy-and-hold strategy? Call us today at 240-436-2340.

How to Select the Right Property to Expand

January 2, 2020 by Kyle Sennott Leave a Comment

In our previous blog, we’ve discussed the need for the new out-of-the-box thinking when it comes to rehabbing properties for profit in 2020. Specifically, we talked about how to add significant value and increase the price of the property by expanding its size. However, not every property profitably lends itself to such expansion. Also, not all real estate investors can carry out such renovation successfully. Here are several factors to consider when selecting the right property to expand and a few questions to ask yourself when deciding whether you’re ready to tackle such a project.

Make Sure There Are Comps

Whatever the type of expansion you’re planning, make sure that there’re other rehabbed properties that are similar to the end product you’re envisioning. If your property’s located in a homogeneous neighborhood with cookie-cutter homes, it would be challenging to justify a much higher value regardless of how big and beautiful your renovation is. That’s why the size expansion strategy works particularly well in DC: the density is high and there are completed rehabs for every size and budget.

However, this strategy can also work in many older neighborhoods that are undergoing some sort of Renaissance. Why older? Because the chances are that many original homes have already been expanded to accommodate the modern tastes and standard of living. These renovations can serve both as a blueprint for your own rehab and as comps to appraise your property after you’ve completed the renovation. Why Renaissance? Because you know you deal with buyers that demand larget homes and have money to pay for it.

Know Thy Buyer

One example of such neighborhoods is our recent deal in Takoma Park. We’re working with a brand-new client looking to rehab a property she’s picked at the auction. The smallest property in the cluster of homes, her house was not offering enough profit margin unless she tackled a major expansion. Uncharacteristically, we were challenged to come with a precise after-repair value since there were so many rehabs of different styles and sizes within a half-mile radius. The most expensive property was a super modern home that looked like it came off pages of the Architectural Digest: all windows, lines, and angles. It set by far the highest comp in the neighborhood, but the scope of its renovation could be difficult to match while keeping an eye on the profit. More modest rehabs in the neighborhood were also $50K to $100k apart from each other depending on their unique styles, lots, and the renovation quality.

Takoma Park is a unique neighborhood. It used to be a working-class area but things are changing rapidly. I’ve rehabbed two properties there last year and sold each of them to mid-career doctors. Both of them were extremely demanding buyers inspecting each detail of the rehab with the magnifying glass. Not only they wanted value, but also quality and style. And of course, the Takoma Park original homes would have been too small for their tastes.

Similarly with Takoma Park, many other Maryland neighborhoods just across the DC lines are seeing the influx of the well-heeled buyers. These buyers are looking for a better value than DC can offer, but are not ready to move-in into any repainted cape cod home. They are the driving force behind more elaborate rehabs in certain neighborhoods that focus on expanding the original footprints of older homes.

Know Thy Regulations

When considering a property expansion, make sure it complies with the neighborhood regulations. Almost any type of home addition will require permits, and any type of permits are bound to increase the overall cost and complexity of your project. If you’re planning to expand up, make sure the code in this particular neighborhood allows it. If you’re planning to finish the attic, make sure you can obtain the required permits and the permission of the homeowner’s association.

Know Thyself

Of course, much of the success depends on one single factor – your ability to effectively manage all moving parts. A rehab that expands the size of the property is more complex and costly than a simple TLC renovation. Because of the increased costs and complexity, it’s riskier: many more things can potentially go wrong. Make sure you have enough experience and enough cash to meet and rise above those challenges. If it’s your first rehab, it might be wise to avoid large scale projects until you gain more confidence in your general contractor, your other vendors, and, most importantly, yourself. However, if you already have a couple of rehabs under your belt, strategically expanding the size of your property might be a way to combat the shrinking margins and come out ahead of the competition.

New Funding Resources is a private money lender that works hand-in-hand with real estate investors rehabbing homes in the DMV area. From Chantilly to Silver Spring, from Hyattsville to Germantown, we have the practical experience and awesome private financing to help you thrive. Ready to roll? Call us 240-436-2340 today.