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What to Consider in a Hard Money Lender - S.T.E.E.R

 

Hard Money is not needed for every deal.  But when considering Hard money, think about these things.  

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What to Expect and What to Avoid in a Hard Money Loan

 

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Is a Low Interest Rate the Most important Thing to Look For?

 

While getting a good interest is good, it certainly is not the most important thing to look for in a Hard Money loan.  There are six things you should look for. Click below to learn more.

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Finding the Right Lender -
7 Key Questions

 

Different loans serve different purposes, and not every hard money lender is the same. Know what you need in both a loan and a lender to see if it is a good fit for you.  

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Hidden Costs in Some Hard Money Loans

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Articles
  • How to Find the Right Lender for Me
  • Ways to Bring Less to Close
  • Do I need a Brokers?
  • Why We Get A Good Attorney
  • Four Things to Consider with Hard Money
  • Watch Out for Hidden Costs
  • Is a Lower Interest Rate Always Best?
  • What to Avoid in a Hard Money Lender


 
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What to Consider In a Hard Money Lender - S.T.E.E.R.

Today there are as many lenders to choose from as there are houses on the market.  So what should you look for in a hard money lender?  Here are five points to consider which will not steer you wrong.  We call it the S.T.E.E.R approach. It stands for Speed, Trust, Easy-to-Reach, Effortless and Rate.

Speed:   One of the primary ways to make fix and flipping work for you is for the process to go quickly.  You want deals to be approved quickly during your short due diligence time. You want your lender to be able to close quickly. And you want your hard money lender to be able to reimburse you quickly.

 

Trust:  Trustworthiness is important when looking for a hard money lender.  Typically, the more you understand a process the more comfortable you are with it.  They should be able to explain how they value deals, how they set rates, and what you can expect from them.  If their names are Shady Joe and Connie Scam and they cannot give you the details you need, perhaps smile, and walk away!

 

Easy to Reach: There are few things more frustrating than not being able to get answers when you need them or not being able to speak with a live person.  Sometimes when you need to move fast, you need to be able to speak with someone in real time.  Is your hard money lending team available when you need them?

 

Effortless:  While it is true that you will need to supply necessary information and documentation in a timely manner, your hard money should not be as difficult as pushing 50 pounds of Jell-O up a hill using a pitchfork (We’ve never done it, but it’s sounds hard!).  A good lender should be trying to make the process easy for you.  Does the process pass your grunt test?  Are you grunting every step of the way?

 

Rate:  The interest rate is what you will pay your hard money lender each month that you own the loan. So, the lower the rate better, of course. Make sure you are getting a fair rate.  But the interest rate is not the only thing keep in mind.  Because you pay a daily rate for every day that you extend the rehab, you will want to go as fast as you can. Every day eats away at your profit. So that the slower they go in reimbursing you on draws, the more you pay in interest. 

 

Is a Low Interest Rate the Most important Thing to Look For?

Article coming soon!

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What to Consider when choosing Hard Money lender - S.T.E.E.R.

 

Today there are as many lenders to choose from there are houses on the market.  So what should I look for?  Here are five things to consider, when looking for a hard money lender which will not steer you wrong.  We call it the S.T.E.E.R approach.

Speed:   One of the primary ways to make fix and flipping work for you is for the process to go quickly.  You want deals to be approved quickly during your short due diligence time. You want your lender to be able to close quickly. And you want your hard money lender to be able to reimburse you quickly.

Trust:  Trustworthiness is important when looking for a hard money lender.  Typically, the more you understand a process the more comfortable you are with it.  They should be able to explain how they value deals, how they set rates, and what you can expect from them.  If their names are Shady Joe and Connie Scam and they cannot give you the details you need, perhaps smile, and walk away!

Easy to reach: There are few things more frustrating than not being able to get answers when you need them or not being able to speak with a live person.  Sometimes when you need to move fast, you need to be able to speak with someone in real time.  Is your hard money lending team available when you need them?

Effortless:  While it is true that you will need to supply necessary information and documentation in a timely manner, your hard money should not be as difficult as pushing 50 pounds of Jell-O up a hill using a pitchfork (We’ve never done it, but it’s sounds hard!).  A good lender should be trying to make the process easy for you.  Does the process pass your grunt test?  Are you grunting every step of the way?

Rate:  The interest rate is what you will pay your hard money lender each month that you own the loan. So, the lower the rate better, of course. Make sure you are getting a fair rate.  But the interest rate is not the only thing keep in mind.  Because you pay a daily rate for every day that you extend the rehab, you will want to go as fast as you can. Every day eats away at your profit. So that the slower they go in reimbursing you on draws, the more you pay in interest. 

 
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Find the Right Hard Money Lender – Seven Key Questions to Ask

Finding a good hard money lender is as important as finding a good interest rate. But what should you look for? Here are some suggestions - easy and trusted service, good rates, no hidden costs and quick payment on completed work. So, when vetting a lender, consider asking seven key questions.

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What is your interest rate and what does that get me? Yes, rates are important, but the lowest rate can sometimes be the worst reason for choosing a lender.  Study what your rate gets you. (You’ll want to read… to understand it more fully)  A lower rate may also mean slow and frustrating service, or it may mean you have to wait longer than you’d like to get reimbursed on draws which could extend your loan and cost you money in interest paid.  While seasoned flippers do seek a good rate, they know that finding a trusted and reliable lender to fit their needs is key to their successful rehab model.

 

How fast can you review and approve a deal?  While it is important that you give your lender adequate time to valuate the deal, you may need to shorten your due diligence period to be competitive with other buyers. So, can your lender work within your due diligence timeframe?   A well-oiled lending process can vet a deal probably within 5 business days.

How fast can you close? Oftentimes, sellers look favorably on a buyer that can close quickly.  Let’s say a seller has two offers to choose from – yours and another. If all else is equal except that you can close sooner than the competition, your offer will most likely be accepted.  Finding a lender that can fund quickly could be the difference between winning or losing the deal.

How quickly will you reimburse me for draws? A draw is the money that your lender reimburses you for work completed.  Most successful rehabbers have a model that is built partially on speed of work. The faster you flip, the faster you sell, the faster you make money. How fast can your lender reimburse you? Waiting for money can extend your rehab as much as 10 days or more for each month of the rehab. It is beneficial to find a lender that will reimburse you quickly.

 

Will you give me feedback on how you arrived at your valuation?  A good hard money lender is like your safety net to warn you of a potential money pit. You are probably skilled at valuating a potential rehab. But remember, this is what a good lender does all day! They will not fund bad deals. If they do, they will soon be out of business! The right lender for your deal will know what it will take to make money on a flip in the neighborhood where you are looking. They will no doubt be conservative on the after-repair-value.  If they decline your loan, do not let your pride get in the way. Take time to consider the facts, learn from it and adjust. A good lender will give you the facts.  IF they cannot work fast enough for you, how much does it cost you to lose a deal?

 

Do you require excessive documentation? Your hard money loan is not a conventional loan. It is short-term private money loan, so it should be a quicker process, for the most part. It may be worthwhile to pay a slightly higher interest rate for speed and easy approval. Usually, certain docs are only required the first-time you borrower from them. After that, the docs should be on file.  Three documents can typically get the underwriters to start valuating the deal while you gather the other docs - your scope of work/budget, the executed contract, and your proof of funds.

 

What are the other costs associated with closing the loan?  Hard money provides a great service but remember, nothing is for free. If a lender is offering a lower interest rate, great! But read the fine print. You may be paying for it somewhere else.  Be sure to request a term sheet that delineates all costs associated with closing the loan. Then take the time to ask questions and understand it. Are there hidden costs?  For example, one lender may tell you that you won’t have to make a payment until the fourth month.  But be advised that you are paying extra to do that.

 

All of these and other factors are matters to consider. Most important, find a lender that you really trust, gives you easy access to cash, works with you and can work at your pace. Don’t be penny-wise and pound foolish. Even if you are charged more, finding the right lender may be worth it.  A safer, more profitable position is more valuable in the long run.