The main difference between private and traditional lending is that private lenders base their loans on the after-repair value of the property. In contrast, conventional lenders base it on the current market value. Both the after-repair value and the current market value is ultimately determined by a licensed appraiser. However, the after-repair value is the value that is not there at the time of the appraisal. It’s simply a projection of what the property might be worth once the planned renovations are completed. It’s based on the sale prices of similar properties rehabbed to the same extend our investor plans to rehab hers.
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The underwriting speed is one of the main differentiators between hard money loans offered by private lenders and conventional loans offered by traditional mortgage companies. “How long does it take to close?” is often the first question prospective borrowers ask. In many cases, this is a rhetorical question: if a new investor knows anything about private lending, it’s that it’s faster than other types of financing. Private lending does not provide consumer financing and is not subject to extensive regulations and requirements. Hard money financing is heavily focused on the property itself and its ability to both make money for the investor and serve as sound collateral for the lender. When working with investors, the cornerstones of conventional underwriting, such as credit scores or the ability to make payments in the long-term, might be less important.
The “Covid-19” real estate performance numbers are officially in and guess what? It had another record-breaking summer. In July, the median home sales price hit a ten-year high, posting a 13% increase from last year.
What does it mean for you? It means that if you bought a property for $200K in summer 2019, by now you would have been at least $26K richer. Just think of it – you would have earned $26K by doing virtually nothing.
Real estate investing is a fantastic way to make money. Whether you are looking to book your profits as soon as possible (fix-and-flip) or are building long-term wealth (buy-and-hold), there are strategies that fit many budgets and investor profiles. However, “many” doesn’t mean all. Not everyone is in a position to take on the risk associated with real estate investing. Not everyone can afford it, and not everyone succeeds. Doing something for the first time in your life is risky; being a first-time real estate investor is no different.
The right hard money lender is an essential part of your success as a real estate investor. This is why you might not want to rush in doing business with the first lender who pre-approves you or promises the lowest rates. Make sure you understand what the right lender means for you and what your personal expectations of a successful partnership are. To help you do it, we put together eleven awesome tips on how to choose a hard money lender that is right for your level of experience, financial strength, and entrepreneurial style.
Hard money loans are specifically designed to meet the needs of real estate investors looking to purchase and rehab properties. Working with a hard money lender offers a viable alternative to paying for acquisition and renovations with your own cash – something that few potential investors can afford. Private money lending democratizes real estate investing, but to succeed with hard money you need to follow several fundamental principles. Here are seven best practices for maximizing your profits and building long-term wealth with hard money loans.