This is the second installment of the series, where I would be answering some frequently asked questions related to investing in real estate.
We got an awesome response to our last post about hard loans and we thought of doing this as long as people find it useful enough…
Today, I am going to discuss another important question, which is the reason behind most of the problems for those who are willing to get into the real estate investing game.
The question is: how to find money to do fix and flips?
Every month, we usually get around 250-300 loan applications. Most of them have never got their loans closed because the borrower wasn’t well informed about the procedure of hard money lending.
That’s why; I want to discuss this in detail to give you a better understanding. ARV or after repair value is the basic factor on which hard money lenders fund money and they won’t lend you more than 70% of the ARV.
That is the total amount they will lend for both purchase price and rehab costs. Then on top of this, you need to have money to pay the points and fees on the loan at closing.
If you want to get 100% financing with purchase price and repair cost, you need to buy a property on lower than the estimated ARV.
If you are buying an awesome deal as well, then also the points and fees during closing should be $2000 at minimum. Most of the new real estate investors don’t understand that they have to put some money out of their pockets initially and they won’t get the cash instantly.
Another situation is that where investors aren’t purchasing the property at lower ARV, which could help them in getting 100% financing and there is a gap between the loans they get and the price they have to pay for purchasing and rehabbing the house.
Investors need to understand one thing clearly that yes, there is 100% financing available for them but that doesn’t mean that they don’t have to put any money down.
There are investors who could say that they are broke and they can’t take any money out of their pockets.
There’s one solution for them and only few experienced investors know about it and that is the combination of hard money lending with private money lending.
This gap which needs to be filled by the investors isn’t too big and for that you can take the help of anyone from your social circle. They can help you in this investment and you can give them a percentage of the profits in return.
If you’ll do it properly, then you can do your fix and flip successfully and you’ll make enough profits to move towards your next real estate investment deal. At that time, you won’t need any private money lending because you’ll have enough money from your previous investment.
If you are unable to find private money lending within your friends circle, then you can look for these resources over the internet. You can find private investors via different websites or forums or social media portals.
You need to find someone who could fill that gap for you. But please make sure that you understand their terms and conditions, otherwise there are many who would try to trap you.
We at Do Hard Money also work in developing a trustworthy relationship with the people who are interested in helping you to fill this gap.