When some think of hard money, they think the only people who would need that are people who have horrible credit and are desperate. Hard money real estate loans have been a solid source of funding for the fix and flipping crowd for several years now.
Now even people who run successful real estate businesses have turned to hard money for various reasons. Those reasons include:
- The time it takes to get a hard money loan versus a conventional loan is night and day. It may take up to 45 days to get a regular loan while a private hard money loan might take 7 or 10 days at the most.
- Some people don’t have great credit. One illness can put your good credit in the waste paper basket. Even one bad real estate investment or a foreclosure can make you go from a good credit score to a low credit score.
- Leverage-some people have the cash to pay for a rental house to fix and flip. They choose not to use up all their capital so they can leverage their money and buy 2 or 3 houses. They figure to take advantage of leveraging their money so they can get in on an appreciating California market.
- Tax returns-Some folks are self-employed and they can write off a zillion different things. Their adjusted gross income many times arenot high enough to even buy a condo in a questionable neighborhood.
- Foreign Nationals-there are numerous foreign nationals in Los Angeles, Orange County and San Diego. How are they supposeto buy a property when they don’t even have a credit score or any tax returns? They often turn to hard money.
When my borrowers look at a property to purchase, first they figure in how much for the rehab. Second, they figure in closing costs for a hard money loan. Third, they figure in carrying costs. What carrying costs are is the cost to carry a property from month to month, usually in the form of principle, interest, taxes and insurance.
Recent changes to FHA loan requirements are reported to allow 75,000 to 100,000 more people to qualify for a home loan who otherwise wouldn’t have been able to qualify. Whether this changes anything remains to be seen, especially when that figure is for the whole country, not just California.
The Future of Hard Money Real Estate Loans
Even with the new FHA easier lending standards, I don’t foresee private money loans going away anytime soon.People will still need speed. They still want their loans as soon as yesterday. They need someone to get past all the red tape you have to get through with a conventional loan. When one puts in an offer to buy real estate, the listing agent wants to know how quickly the person can close.
Not only how quickly, they want to make sure the person CAN close and is qualified. There is nothing more depressing for an investor to take the time out to research a property, being awarded the house only to find out having it taken away from you because the listing agent finds out you are not qualified.
For more information to see if you are qualified for a California hard money loan, call George at 619-987-8639.