Hard Money

Real Estate Investing Course - Lesson two

Lesson one was about the right way to do a fixer-upper. Where do you get the money to buy it though? This lesson is about one way: hard-money lenders.

These lenders make short term loans (usually 24 months or less) for the purpose of purchasing and rehabbing properties. They often charge a fee of as much as five percent or more of the loan amount, and up to fifteen percent or more annual interest. So why would you want to go to them?

Think of it this way. A seller is facing potential buyers that put in their offers contingencies like waiting for the sale of their house, or applying at ten banks. Using hard money lenders, you can say "I can close for cash in a week." That gets the seller's attention.

Hard Money - How It Works

You can usually only get 65% to 70% of the property value, but of the ARV, or "after repair value" (as determined by their appraiser). It will also be based on the property, more than on your credit, another reason you may want to use them. Let's look at an example.

You find a house that will sell for $180,000 when it's ready. It's beat up, so you get it for $107,000. You borrow $117,000 (65% of the ARV), so you actually get more than 100% financing, although the excess $10,000 goes into a escrow account to be drawn on for repairs.

It takes four months to complete the house, and you get $180,000 for it. We'll assume $2,000 in buying costs, $8,000 in loan payments and other holding costs, and $14,000 in repairs, so you have $131,000 into the project. $117,000 came from the lender, so you put the other $14,000 on credit cards as you went along. (Notice this is a zero-down deal?)

At closing you have a $9,000 sales commission and $2,000 in other closing costs to pay, plus the loan fee. Let's see where we are:

$107,000 - Price.

$2,000 - Buying costs.

$8,000 - Holding costs (loan payments, insurance, credit card payments, property taxes, etc.).

$14,000 - Repairs.

$9,000 - Sales commission.

$2,000 - Other closing costs.

$5,850 - Loan fee.

Total: $147,850

Sales Price: $180,000

In Your Pocket: $32,150 dollars.

Now, in that category of "holding costs" there was about 5,800 in interest paid to the hard money lender (four months at 15% annual interest), plus the loan fee of 5,850. Does it seem like 11,650 is a lot to pay to use 117,000 for four months?

It is! But so what? Hard money lenders get paid well to take risks. So what if someone made $11,650 to help you make over $32,000 in profit?

Look, if you and your project qualify, and your seller isn't in a hurry, head for the bank. If not, or if a down payment is a problem, check out hard money lenders. They let you purchase a property quickly, with less red tape.

Just be sure you understand the terms. Remember that if you don't sell before the loan is due, you'll have to get another expensive loan. Plan well when using this source of financing. Good luck,

Steve

=================================

Secrets Book
How To Read Minds, Boost Brainpower, Get Lucky, See The Real News, Find Treasure, Subliminally Persuade People - And That's Just The Beginning!
Learn more here...
http://www.TheSecretInformationSite.com

(There is only a little about real estate secrets in this book, but it comes with several bonuses, including a decent e-book on how to negotiate effectively.)

=================================

Note: This is part of a subscription course. If you haven't subscribed, and want to get the other lessons (no charge for now) use the link below to go to the home page and sign up.

Make That Offer | Hard Money