Hard Money Loans Explained in 2024! (Easy Beginners Guide To Hard Money Loans)

There's actually an unconventional route to fund all of your deals and only a few people know and even fewer people continue to use this route to build wealth. Welcome my name is Joshua LaRue and I create videos just like this one to make real estate investing simpler. If this is your first time here on my channel I'm just a regular guy who started multiple businesses and failed until I succeeded but I was able to still able to create wealth by having 14 co-living units and I'm currently building 49 more in San Diego that are currently worth over 20 million dollars and now I make money while I sleep. Today I'll teach you about a special kind of loan that even someone new to flipping houses take advantage of. It's called hard money loans. It's a short-term loan in real estate that's issued by private investors or companies and not traditional banks. Think like hedge funds. It's a special loan you could use of if you want to buy property fast but can't get the conventional loan at the time. Aside from receiving funds faster compared to a traditional loan, hard money lenders only focus on how much you would profit from the deal you will make. So instead of your typical requirement of having good credit scores, income requirements, tax returns, and a 20% down payment, as long as the property could be fixed into better shape and be sold higher you might be able to qualify for a loan. But wait a minute Josh, if hard money lender gives you faster closing times and gives chances to people with lower credit scores and DTI scores, what's stopping me from choosing a hard money loan compared to a traditional mortgage? There are actually four reasons why you might not want to use hard money loans. Hard money loans tend to have a higher closing cost which usually has ranges from a $1,500 to $2,500 flat processing fee in addition to a one to two to three percent origination fee and you could also have higher interest rates ranging from nine percent to fifteen percent interest rate which varies from lender to lender against the normal six to seven percent of a conventional loan. The other thing is they also have shorter time frames only last for 12 to 24 months pressuring you to exit the loan quickly instead of a 30-year mortgage. And lastly, using hard money loans puts you at risk to losing the property due to foreclosure. Now we know the pros and cons of hard money loans. In a moment I'll tell you what kind of investor uses hard money loans and how they can use this to their advantage. But first, I would like to ask you a favor. If you find this video helpful, please like and subscribe to my channel. I create videos just like this to make real estate investing simpler. I would like to personally invite you to my real estate investing program called the Simple Wealth Academy. Aside from mission 333 where we want to help 333 members get three rentals in three years and help three people along the wealth journey, the program also contains all the step by step process and hard to find information that I used to purchase my first investment property and has helped me build wealth forever. Now let's get back to the hard money loans and how you can use this to take advantage. One of the secrets of how investors use hard money loans to build wealth is by buying and renovating and reselling properties by using hard money loans. Secure deals quickly and capitalize on undervalued properties. That's where hard money lenders come in. So as much as you can, you want to befriend them. Just like everyone else, lenders want to make sure that you have the money and it's safe. That's why lenders would ask you to fill up a pre-screening form. On one hand, it could be a daunting task during the first time to fill up one of these pre-screening forms because they would ask you to complete details of the property like location, zip code, types of property, vacancy status, purchase price, and all the extra small stuff. As well as asking your approximate rehab budget, estimated project length, and what kind of rehab you'll be doing. All including permits, plans, approved or not, and the closing date. All of those and more would be found in the pre-screening forms but don't be discouraged. Your lender will help you through this whole process to help you fill those out. All of those details are important because your lender uses a BPO or broker's price opinion to appraise your property. So based on your renovation plan, the broker would reappraise your property and give it an ARV or after repair value. Your ARV is very important. It can make or break the deal. Your lender wants to see if your loan amount is less than 70% of the ARV. This means that the lenders would focus only on making a profit on a renovation and house flipping because the bottom line, hard money lenders won't lend money if they think you're going to lose money on the deal. So 70% of ARV meaning they have a 30% buffer putting your rehab in there and all this other stuff and you can still make a healthy margin. So you do need a good plan because you'll need to buy, fix, and sell the property within 12 to 24 months or risk losing the property to foreclosure. But on the other hand, if you can make your lender comfortable, aside from having an 800 plus credit score and having done 20 plus projects in the last two years, on top of that, you have enough liquid reserves to cover the down payment, closing cost, renovation budget, and six months of holding costs to do the deal successfully. By doing that, you'll have lower fees, better rates, and higher loan amount. But of course, there are ways to sweeten up the deal to make sure to watch till the end and I'll show you a few tricks up my sleeves when dealing with hard money lenders. Now that we understand that hard money loans are a high-risk, high-reward proposition for first-time homebuyers, should you take it? Just like everything else, the answer is it depends. With high interest rates, short terms, and risk of foreclosure, I can't think of a reason why you should choose this as a long-term option. But if you want to start having your fixer-upper business or even buying it so you can make your property better, you have to keep in mind that your interest rate would also depend on some of your requirements like your credit score, real estate experience, or how many projects you've done in the past two years. Also, remember, they're also going to check your liquid reserves like cash, stocks, retirement funds, and your renovation budget will also be asked by your lender. Also, some of these hard money products can pay for 90% of your purchase price plus a 100% of your renovation budget. But the only thing is you have to expect to have a higher interest rate compared to someone asking for 80% of the purchase price plus no renovation budget which means oftentimes, you receive a lower rate. As I said before, filling up the hard money lender form could be a daunting task and some lenders also include more hidden fees. Now you know the pros and cons and how daunting filling up the lender form is. Would you still use this loan type? Let me know what you think in the comment section. And as promised, I want to show you one simple trick but a lot of people still manage to mess this up. All you need to do is treat people nicely. That's it. Do good business, treat people nicely because a lot of people, they don't do something as simple as, hey, how's your day going? Oh really? That's a good day or something like that, right? Your lender is still a human being at the end of the day and you're asking your lender for a favor and you want to win over your lender. So if a chill person and a loan officer likes you, they can give you a workable rate and might even help you in ways you wouldn't expect. If you're arrogant, bossy, and start acting like a jerk, the moment you enter the lender's office, you can immediately expect that you won't get any favors. But if you want a lender who you can trust and help you make processing your hard money loans even easier and could even give you your long-term partner for a fixer-upper or adding value to your rental properties, DM me the word hard money on Instagram. My Instagram tag is right here and I'll refer to you my top hard money lender that I have personally used or my team has used. They make pre-screening easy. You can even reach out in advance to ask more questions and even guide you to your first real estate investment. Again, thank you guys for watching. I hope you guys picked up something new today. If you have any questions, leave them in the comments down below. I promise I will answer them as fast as I can. Also, if you want to stay updated with everything about real estate and making real estate investing simpler, please like and subscribe to this channel. Again, this is Josh for the Real. I'll see you around next time. Peace.