If you are interested in becoming a real estate investor who specializes in buying and repairing distressed houses, also known as a "flipper," then one of your key considerations will be obtaining financing. A good way for flippers to finance their purchases is to work with financial professionals called hard money lenders. The following article examines this issue in more detail.
What Is It
The most common type of real estate lending is from banks. A bank will look at factors such as your credit worthiness and typically make a decision based on your credit rating, all other things being equal. Hard money lenders have different criteria for making loans. They are not as worried about a person's credit history, but are more concerned about whether the specific property involved in the loan will make good collateral. These lenders also look at how much equity an investor is putting into the deal themselves.
So if a flipper with a less than stellar credit history finds a property that can be rehabbed to increase it's value and also can put some of their own cash into the deal, hard money lenders might be a better alternative than trying to borrow from bank.
One key issue or flipper is the costs of repairs. In many deals involving distressed houses, repairs are essential in order to increase the home's value and sell it at a profit after the renovations are complete. This creates a problem for flippers who are not able to fund the repairs out of pocket because banks will typically not lend money for repairs to investors. Fortunately, however, some hard money lenders will include the cost repairs in their loans.
Loan Approval Time
Another key consideration for flippers is the approval time for a loan. Bank loans can take 30 days or more for the loan to be approved and your money to be available. This can make buying the home difficult, because flippers often have to compete with many other bidders for a distressed property. If you have to wait a month or more to obtain financing for the purchase, you could easily lose out to bidders who have the money ready available.
Hard money lenders help minimize this potential pitfall because their loans are typically approved within a few days of the loan request.
Hard money loans are an intriguing way or flippers to finance their purchases. For more information about this topic, talk to a hard money lender in your area.Share