Many people have never heard of hard money rehab loans. Most people have no need for them until they decide to explore real estate investing. With all the books and infomercials, more people are thinking of entering the game. But, the books and videos probably will not give you the whole picture. Here's a good snapshot.
I have read the books. I have attended the seminars. I know that the market is right for flipping, because there are lots of motivated sellers right now, willing to close for a lot less than usual, if I can act quickly. Their finances are strained to the breaking point. So I've found a couple of promising fixer uppers and now I need hard money rehab financing. Why?
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Because the banks are in the same financial position that my motivated seller is in. They have been forced to foreclose on too many properties, sometimes taking a loss and their reserves are low. To get a rehab loan hard money lenders are the best choice and maybe the only choice. They can act faster. They offer pre-approval.
After I am approved, I can promise my seller that we will close in two weeks. The private lender that I chose specializes in hard money rehab loans, so they gave me a proof of funds letter. My seller is comfortable with my ability to buy her home, so she has stopped looking for other buyers. I am helping her out of a bad situation. She needs to move, because the company that she works for is relocating its main headquarters, moving across the country. They have offered her a good position at the new location, but she needs to be ready to move in 30 days. I feel good that I can help her and I am sure that I can make a profit on the house.
I need hard money rehab specialists, because it could take me several months to complete the project and another few months to find a buyer. The buyer will need to get approved for a mortgage and that will take another thirty days. Unless I want to tie up all of my capital for six or seven months, I need funding for purchasing and rehabbing.
As I mentioned, the lender that I chose specializes in hard money rehab loans. Because, I was able to get the buyer to agree to a price that is less than half of the after repair value, my lender will roll together the purchase price with the cost of repairs and the closing costs, meaning I can close this deal with next to no cash out of my own pocket. A bank, if they would have approved the loan, would have forced me to take one loan for the purchase price and pay all of the closing costs (my seller's finances are too tight).
Then, if I wanted money for rehabbing, I would have had to get another inspection, proving that the value of the house was more than the amount of the first loan. Then, I would have to take out another loan, using the equity as collateral (something like a second mortgage) and pay all of the closing costs on the second loan. You should be able to see why I think that when it comes to a rehab loan hard money lenders are the right choice. All of that out-of-pocket money would have made it impossible for me to think about buying that other fixer upper. Plus, the banks just take too long.
If you are like me and you see what's going on in the market, then you see the potential for huge profits. If we can get busy and stop waiting on the bankers to decide if and when they might start lending again, then by the time the recession is over, we might be able to give up our day jobs. Hard money rehab loans have what we need, money to lend, quickly. Maybe you should consider a private lender for your next "Needs Work" purchase.
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