The Effective Use of Hard Money

Seasoned real estate investors know the value of having a hard money lender in their corner. When that fantastic deal comes along, but you know that you’ll have to snap it up quickly or it’ll be gone, you don’t have the time to drop by the bank, put in an application, and then wait three- to six months for them to decide on your investment real estate proposal. With a hard money lender you’ll be able to act quickly, to take advantage of opportunities as they become available.

Hard Money Lenders will usually lend 50% - 65% of the after-repaired value (ARV) of an investment property, minus the cost of repairs. The loan will usually be interest-only for the purchase and rehab of the property. Most hard money lenders understand the game: how the real estate market and real estate loans work, and they’re looking for a secure investment with a better rate of return than what they can get from a bank. Look for a lender that you can build a relationship with. The better you begin to know each other, the better terms you’ll begin to receive.

In order to make multiple offers on different properties listed with real estate agents, you will absolutely need a “Prequalification Letter” to submit along with your offers, especially if the properties that you’re interested in are REOs (Real Estate Owned - in other words, bank-foreclosed properties). This is because many investors have made offers on foreclosed properties but never followed through on the purchase of them. Therefore foreclosure officers and agents have become somewhat suspicious of all investors. But once they know that you’re serious, that you have access to financing, your offers will carry more weight with them. Once you’ve completed a few transactions, they’ll even begin contacting you about properties before anyone else even knows about them. You’ll also become more confident, knowing that you’re able to close on properties and either rehab or wholesale them to other buyers.

And speaking of selling properties to other investors, a relationship with a hard money lender can again prove itself to be invaluable. Your own hard money lender will be your most important resource for ensuring that your deals make it all the way to closing. You can actually put your buyer together with his financing source, your seller. Many prospective investors cannot pay all cash, and you don’t want to wait while they go off and try to arrange financing. You’ve got your own financing source; your own “bank” waiting in the wings for the next great deal. You can lead your buyer to the money.

Hard money lenders are a great resource for real estate investors, whether beginner or seasoned pro. Having a hard money lender behind you allows you to confidently make offers that you couldn’t otherwise make. Hard money enables you to carry through on those offers when they are accepted, and provides you with the necessary funds that you need for rehabbing or disposing of the property.

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