Hard Money Loans for First-Time Investors

We specialize in helping new rehabbers thrive in the real estate investing business.

If you are new to real estate investing, you might have already encountered one particular challenge. Many private lenders are reluctant to lend to borrowers with no successful fix-and-flip transactions under their belt. Their reasons in simple. The borrower might be able to talk a good talk but talk is cheap. Would this new borrower be able to identify a profitable transaction and put it under contract? Are they realistic about the rehab budget? Can they effectively manage the constriction process? Without documentable previous experience, a lender will have no choice but to make some sweeping assumptions. And those sweeping assumptions are exactly what makes private lenders wary of working with new investors.

Who are considered first-time investors and why are some lenders wary of them?

From a hard money lender perspective, first-time investors are investors with no recent track record of flipping homes or owning rental real estate. Investors with experience would need to verify it by proving that their names (or the names of their LLC’s) are or have been on the titles of the properties they claim to own. Lenders can also check the ownership by looking at the tax records or requesting a HUD-1 form from the borrower.

Many aspiring investors have what we call “tangential experience” in real estate. Tangential experience is a plus but does not bear as much weight as direct ownership. Such a new investor might be a real estate agent who helped numerous clients to make money rehabbing homes. They could be a contractor deeply familiar with the intricacies of the renovation process and able to do it at below-market prices. Alternatively, they might have served as a silent partner – someone whose name was never on the title but who nevertheless was essential to the transaction.

At New Funding Resources, we don’t underestimate the value of the tangential real estate experience. After all, it’s that practical experience that inspires first-time rehabbers to take a leap from being a part of a team to being solely responsible for its ultimate performance. The majority of folks learned enough from the such experience to avoid being a complete newbie. However, not everyone will succeed in their role as an entrepreneur-in-charge. We’ve seen successful lawyers struggle with completing their first rehab. We’ve also been impressed with recent immigrants with rough English who’ve hit it out of the ballpark on their first transaction. In other words, it’s different to be “well-positioned” for success and actually have tangible proof of your ability to make money rehabbing homes for profit.

How’s New Funding Resources different?

In business since 2006, we have built a long record in helping new investors enter the Washington, DC-are real estate investing business and thrive in it. The decision to work with newer real estate investors has been relatively easy. Though lending to new investors is considered riskier, our portfolio performs consistently well. Perhaps we have a knack for selecting the right new investors to lend to. Perhaps, it’s the comprehensive support we provide after the closing. Perhaps, it’s our belief that even the most successful real estate investors were – once upon a time – beginners. Many of them might not have been able to launch their real estate careers if someone, somewhere has not given them a chance.

Another reason why we chose to work with new rehabbers is that a big portion of our business comes from repeat clients. Many new investors of ours have gone on to have prosperous careers in real estate investing. Initially their original lender, we’ve become their lender of choice. This is exactly how we prefer to do business: build long-term relationships with competent folks based on trust and the opportunity to make money together. We are not a huge firm and don’t have ambitions to expand nationally. In other words, our market is finite. Just like our private lenders, we love working with experienced borrowers. The difference is we don’t mind “growing” them. Instead, we chose to cultivate the local market – Washington, DC, Maryland, and Virginia – being the most trusted private lenders for experience and new real estate investors alike.

Ready to tackle your first flip? We have a plan and the funds to speed you along. Call us today to get started at 301-812-3257.

How to qualify for a hard money loan if you are new to fix-and-flipping?

We often say that if an investor is well-positioned to make a profit on a real estate transaction, we will find a way to fund it. But what does it mean exactly – to be “well-positioned”? Here are four elements that put you in a position to make money:

Buy at a sufficient discount. You might have all experience in the world, but if the numbers do not allow for a sufficient profit margin, what’s the point? To evaluate your potential profit, use our hard money calculator. We don’t have specific profit requirements, so just use common sense.
Have money to invest. Becoming a first-time investor implies that you have money to invest. Not only that, private lenders like us expect you to have some skin in the game. Yes, we will provide you with the majority of funds you need to buy and rehab a property, but you need to share that risk by contributing your own funds. Recommended reading: No Money No credit.
Have reserves. Reserves are the funds that you have left after you’ve made your contribution toward the transaction. Having them is especially important for brand-new investors and rehabbers. The more reserves you have the stronger your application looks to a hard money lender. Why? Because those reserves act as a safety net when the going gets tough. Imagine that your rehab costs are more than you’ve initially planned on. Who is paying the difference? Yes, those extra funds required are not your lender’s responsibility but yours. If you don’t have some extra savings, the project could be delayed or even default. This is not a good scenario for either you or your private lender. Recommended Reading: The Role of Reserves in Private Lending.
Credit. At New Funding Resources, we are not credit-score-driven and lend to borrowers with all types of credit. However, if you are new to flipping homes, it is helpful if you have a strong credit profile to demonstrate financial stability and discipline.

How do we support and help new real estate investors grow?

Work with DMV real estate experts and have direct access to decision-makers.

We are not a huge organization. We are a boutique private lender that lends its own funds. That means we don’t have rigid underwriting guidelines and can be nimble, flexible, and fast. If you need an exception, you can talk to a decision-maker without being delayed by the corporate bureaucracy. We are also laser-focused on the greater Washington, DC area. We know what it takes to have a successful rehab business in our area as well as to manage an extensive real estate portfolio. We readily share our expertise with our clients.

Free pre-approvals.

The pre-approvals for our hard money loans are free. There are no application fees. Your only expenses prior to the loan closing are the appraisal fee you would pay to a licensed appraiser.

Work with the same team before and after your loan closing.

If you are a real estate investing beginner, you might not be aware of the importance of servicing in hard money lending. Unlike with conventional lenders from whom you rarely hear once your loan closes, you will need to work hand-in-hand with your private lender until you pay off your loan. We don’t delegate servicing to a servicing firm or to our junior employees. All our servicing is done on-site and by the same team you worked with initially. Recommended reading: How to work with your lender after the loan’s closing.

Timely escrow disbursement.

If you are working with a private lender, chances are your rehab budget will be held in escrow. Once you complete different stages of renovation, the funds will be dispersed to you in a series of draws. Quick disbursement of such funds is another advantage of working with a local private money lender. We have boots on the ground and can check on the progress of your renovation literally within days. You can move to the next stage of your renovation without costly delays and hassle.

Free tools.

We are transparent in how we underwrite our loans. We openly share the tools we use in our underwriting process. Our hard money calculator helps you estimate your profit, your return-on-investment, your return-on-cash-invested, and the contribution you might be required to make to the transaction. Our calculator is unique in giving you underwriting recommendations and presenting your investment scenario in a visual and easy-to-understand format.

We also have recently launched a new tool that helps your estimate the maximum purchase price to pay for a specific fix-and-flip. Its unique feature is that it’s based on the minimum profit you as an investor would be willing to accept for your time and effort. This calculator can be accessed here.

Free real estate information targeted specifically towards the Washington, DC-area real estate investors.

We say we openly share our expertise, we mean it. Just check our hard money blog we’ve been sharing concrete, actionable, and Washington, DC-area-specific information for more than six years. Trust us, you will gain real estate experience just by reading it regularly.

Free recommendations to battle-tested local vendors.

Even if you are new to DMV real estate investing, with us, you don’t have to start at zero. The path that you will be traveling has been traveled by many of our borrowers before you. We know which title companies are thorough in the title search, work efficiently and keep the interests of their clients close to the heart. We know which local insurance companies specialize in the types of insurance that are required for a private rehab loan and who can effectively guide you through the process. Though we typically don’t recommend contractors, we can help you evaluate their trustworthiness and raise the red flags if needed.

If you are a beginner looking to embark on real estate investing, we want to talk to work with you. Call us today to get started at 301-812-3257.

What to watch for if you are a first-time investor shopping for a private hard money loan?

If you are new hard money lending, chances are you will do shopping around prior to choosing a private lender that is right for you. At least I hope you will. Some time ago, we’ve written a detailed article on how to choose a hard money lender that is right for you. Today, we will concentrate on the potential pitfalls of selecting your first lender to work with.

Bait-and-Switch

Of course, everyone wants lower interest rates and minimum fees. The question is how to identify offers that are honest from those designed to “rope you in”. Remember, that, unlike conventional lenders, private lenders are not required to uphold their rates or redisclose them if they change. To avoid being a victim of a bait-and-switch, make sure that you are familiar with the general market rates charged to first-time rehabbers. Use common sense: anything that is way below-prevailing rates is probably too good to be true.

Application fees

An application fee is almost always a red flag. With New Funding Resources, the only cost you are can expect to pay out of your pocket prior to loan closing is the appraisal fee. That fee is paid not to us but to an independent licensed appraiser.

Out-of-state lenders

Each private money transaction is unique. It helps when a lender is local and understands the intricacies of the greater Washington, DC market. There are big differences between Capital Heights and Capitol Hill or between Hagerstown and Cumberland. Without this local expertise, it’s hard to be nimble.

Real estate gurus charging for their expertise.

These gurus are in business, and their business is not real estate. At least not anymore. They have found a more profitable industry: the seminar business. That is not to say that you cannot pick up some good ideas from them. However, much of such learning is available from other sources – and for free. It always pains us when we see an aspiring rehabber drop off a substantial portion of her savings on some overpriced real estate course. That money could have been used towards her first fix-and-flip!

It’s not all about the rates.

Good pricing is super important but so is the service. Imagine if you have to wait weeks for your draws to be released. All the while the clock is ticking and you are paying that wonderful interest rate. Your goal as a new real estate investor is to minimize your expenses. However, your expenses are not driven by the interest rates alone. Poor servicing and resulting delays and misunderstandings can also be major contributors to the diminished profits.

Ready to start your real estate investing career? There is no better time than now and no better market than Maryland, Virginia, and Washington, DC. Apply today or call us at 301-812-3257!

How to Impress Your Private Lender as a First-Time Borrower?

Obviously, regardless of whether you are a complete newbie or an experienced real estate investor, you need to meet our basic underwriting criteria. You might be able to sell snow to an Eskimo, but you will not be able to sell a poor real estate transaction to an experienced private lender. However, there are ways to make a good impression and lay a solid foundation for future work together. Here are some suggestions on how to do it:

Do your basic research on the industry. At the very minimum, Google “What is a hard money loan?” and read what it is and what it is not.
Learn a bit about the lender you are calling. After all, there must be a reason why you’ve decided to pick up the phone and dial their number. Did you see their reviews? Do you like their website? Has someone recommended them to you? Are they located close to where you live or plan to invest? Start the conversation with something that you already know about them.
Have some specific questions ready. I am sure that as a new investor, you have plenty of questions and THAT’S OK. It’s actually a good sign. It means that you are curious, open-minded, and want to learn. All of these traits make for a successful real estate investor.
If possible, display common sense. We often have potential borrowers who are calling about “exciting investment opportunities.” They know someone who is willing to sell them a distressed home in “a great neighborhood”. However, they have no idea how much the rehab will cost and how much that house in “a great neighborhood” will cost after the renovation. Ahem? So what exactly makes such an investment opportunity “exciting”?
Don’t call because and don’t behave like investing in real estate is your last “hail Mary” attempt to get out of some financial hole. Desperation typically clouds the judgment, and a borrower with clouded judgment is the last thing a private lender wants.
Be realistic about how much money you have available for investing and how much you have in reserves. Eventually, your lender would find out anyway. Even if you don’t have enough to start investing right away on your own, your lender might recommend creative ways to get your hands on more capital. Worse come to worse, you might need to save a bit more to get yourself in a position to invest safely and profitably.