I get a lot of questions, and I’d like to make it easier for you to get answers. Today, I’m fulfilling several of the questions I’ve recently received. If you have questions of your own that you’d like to see answered about using hard or private money, I’ll show you how you can get them answered!
#1 “Please explain the difference between hard money and transitional/transactional funding?”
Transactional funding is for a short period of time; anywhere from 1-3 days. It’s very expensive and very short term, and usually only comes with a “point” attached. A point is nothing more than a percent. So, if you want to borrow $100,000 for this 1-3 day period, and it costs you “5 points,” that means 5% or $5,000 you must pay just to borrow that money for those short, few days.
Hard money works like this; say you need $100,000 for 6-12 months for the residential housing market (or 18-36 months, as commonly found in the commercial sector). A lender could charge you 5 points, which is $5,000, and you’ll also pay interest monthly.
$100,000 @ 5 points ($5,000) + 15% interest payment is going to run you $20k (I’m using simple, noncompounded numbers here for this example). That’s $20,000 spent for the $100,000 over the duration of the loan.
So, when is it a good time to borrow hard money? When it’s a good deal. If that $100,000 means you can fix that property up with a net of $50,000 made, then if you have to spend $20,000 to make $30,000, that’s a great deal!
#2 “I want to purchase the duplex I am currently renting. Is there a loan I could get to buy the place?”
If your intention is to continue living in the property, a hard money lenders will not lend to owner occupants. You’re likely going to have to go conventional.
If your plan is to move out of the property and become the landlord, then you could potential go either way, but you better have a plan.
#3 “Once I find a good deal and have it under contract, where can I find the hard money required on both a local and a larger scale?”
First of all, thank you for wording your questions in such a manner. Your first step, of course, is to find the deal and have it under contract!
Thankfully, the next part is easy. Hard or Private Money Lenders are looking for you.
First, go to your local paper and look under the section titled “Money to Lend.” With the list, call them and begin the conversation. They will likely for an email correspondence, asking for the contract to see, what the terms are, who are the parties (buyer/seller), and are you going to purchase the property under a personal name or your LLC.
Buying property with the purpose of flipping it = Buying in your LLC
Buying property with the purpose of holding it (hard money for short-term bridge, fix it up, and refinance in your name under conventional financing = Buying in your name.
Buying a property with a credit partner (someone with a great credit score who could refinance in their name) = Buying in THEIR name.
Your exist strategy should determine your entry strategy, because you don’t want a clouded title!
Then, once you’ve search locally in the paper, go to your search engine of choice (mine’s Google), type in “hard money lender, your city, your state, and the zip code of the property.” A hard money lender that is using search engine optimization will use those elements to populate their website. Again, get on the phone!
Call every single one of them. If you can’t find a lender, the problem is probably 1 of 2 things: you aren’t calling them all, or (more likely) your deal isn’t that good. If you have a good deal, funding is the easiest thing to get.
If you have questions you’d like to see answered here on the blog, go onto Twitter, follow me @LeeArnoldSystem and use the hashtag #AskLee to pose your question. Then, check back on this blog weekly to watch for your answer!
To Your Success;
Lee A. Arnold
The Lee Arnold System of Real Estate Investing
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