Recently we’ve been receiving a lot of inquiries about financing rehabs in Baltimore City. A significant portion of those calls is from borrowers looking to purchase homes with an acquisition price of $60k or below. While we are always happy to discuss any scenario, our 13-year experience taught us one sure thing: not everything is gold that glitters. To apply this saying to the world of real estate investing—not everything that’s cheap is a bargain.
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Your first flip is a cornerstone of your investment career. It may launch a profitable side business that will steadily increase your net worth. Alternatively, it may sour you on real estate for years to come. Being a first-time real estate investor doesn’t necessarily put you at a disadvantage. However, since you are facing a slew of unknowns, this is not the time to be overly confident. Swaggering attitude is a sure sign of a first-time investor immaturity and a red flag for private money lenders like us.
Hard money loans offer unparalleled leverage, speed, and flexibility—something that conventional lenders cannot even come close to. To compensate for the risk, private lenders charge more for their money, making their loans more expensive than those offered by traditional lenders. If you are one of the traditional lenders, the only advantage of your product is the price you charge.
After analyzing a variety of Google search engine results pages, we found that one of the most popular search phrases involving hard money is “hard money vs. soft money.” I live and breathe hard money, but—I am the first to admit—it creates certain myopia when it comes to an understanding what people outside of our industry know about it. Ours is a highly specialized product, but many people, even those who are financially sophisticated, have little understanding of it. A couple of days ago I ran into my former boss, with whom I worked 20 years ago. He is a great, successful man who ran a multi-million insurance and financial services company for MetLife and retired as a multi-millionaire. We started catching up and discovered he has no idea what hard money is—and he is a former financial guru!
To be honest, until last year we hadn’t worked with many real estate investors who were purchasing a property with a specific purpose of offering it for rent via Airbnb. The majority of the deals we see are still your good ole’ rehabs: a buyer snatches a dilapidated property at the right price, invests blood, sweat, and tears into its renovation, and then sells it at a nifty profit. However, to make money in the tightening market, you have to think outside the box. The Airbnb route is not for every investor and not for every property, but it’s definitely a great example of creative thinking.
Some of the best rehab deals I’ve seen have been bought at foreclosure auctions. Yet, when the rewards are high, so is the risk. The risk comes from many unknowns that are unique to homes sold at the auctions. One of the unknows is whether it comes with its former occupants and, if it does, how to deal with them. There are several reasons why you might be wary of buying a foreclosure that is still occupied.