6 Biggest Hard Money Mistakes
and How To Avoid Them
These biggest hard money mistakes, ideas and tips are important so you will have no fear about pulling the trigger on your next deal using hard money.
Worrying About The Interest Rate
Many hear the interest rates that hard money lenders charge and think of loan sharks. How come they can get away with such high rates? The fact is that the rates are not really that high considering the risk they take. They are providing you an almost cash free way to buy, fix and resell houses.
Look at it this way. This money is a cost of doing business until you get your own stock pile of cash. And even then you may still use hard money lenders to keep your ready cash on hand.
Think of it like a fortune 500 company does; as access to capital. It frees you to do the most important part of your job, which is to find below market houses and then get on with your exit strategy. How many offers could or would you make if you never had to worry about money? Applying for funding is free and it doesn’t effect your credit.
Not Having Your Hard Money Lined Up
In their rush of excitement investors will put the cart before the horse. But before you start making offers on houses, reach out to your local hard money lender and understand their terms of engagement.
That way you’re a bona fide cash buyer. Do you know how much better the deals are when you can tell the seller that you’re a CASH buyer? The difference is night and day. The best deals come from sellers who have to move fast for one reason or another. Line up your lender now, so you can take advantage of those good deals when you find them.
Most hard money lenders cannot honestly pre-qualify you because their funding is based on the deal not your credit. So you will have to bring them a deal
Not Building a Solid Relationship with a Hard Money Lender
Setting up a good rapport with a reputable local company that knows the area and can close quickly is vital. Some off the larger national companies take to much time and getting good deals in real estate requires fast action.
While you still may need an appraisal for the file, to be perfectly honest, most local hard money dealers can just drive by a houses and tell you yes or no. That evaluation is valuable in many ways. Long distance lenders (and you by extension) can be fooled by bad comps.
Wouldn’t you rather have a local expert, willing to put his own money up, tell you if your deal is viable or not? I look at hard money lenders as co-signers of my estimate of value. If they don’t think you got a good enough deal, they’re not going to lend you any money. What a way to feel safe in your purchase; having a “stamp of approval” by another experienced investor.
Do your due diligence when it comes to your lending source. Find a lender who does what they say they’re going to do and build rapport with them. A lender you’ve built a good relationship with, who you know is accountable and honest, is much easier to make a loan with.
Not Asking About the Prepayment Penalty
This can cost you up to 5% in additional charges when you sell the property. Make sure you are familiar with all the costs, fees, and penalties.
Not Getting Started Right Away
Investing in real estate is an excellent way to build wealth and financial independence. Most people never start because they think they don’t have the money to buy a house.
Is there a better way to get into your first house or group of houses than to have a local money man say: “You’ve found such a good deal in real estate that I’m willing to lend you the money to buy it and to fix it up”? If you’ve done your homework and are ready to act what could be simpler?
Your business is real estate investing, not jumping through hoops. Apply here using our paperless application and receive feedback in 24 hours or less.
Thinking Hard Money is a 30 Year Loan
Hard money loan terms are typically no longer than two to three years. The reason is simply that a longer term becomes too expensive for the borrower. With hard money lending, the goal is to have the borrower in and out of the hard money loan as quickly as possible.
The hard money lender will analyze each transaction during the due diligence process for “good risk” – to be sure that a property can be re-positioned for conventional refinancing or sale within one or two years.
Complete our funding application as thoroughly as possible. It’s completely confidential, costs nothing and you’re under no obligation.