Using Hard Money
Posted: Wednesday, January 13, 2010
by Rhiannon Wilkinson
When a lot of beginning real estate investors start out in their investing careers, they are star struck about all of the money that is available to borrow, regardless if the investor has credit or cash to put down. The process sounds simple:
1. Find a property that is 50% of it's true value
2. Fix it up
3. Sell it
In a hot market, this business system would be ideal when flipping a single family property. But in this market climate where lending institutions are taking back foreclosures in droves and tightening up their borrowing criteria, it is very difficult to find a pre-qualified buyer for the home, unless it is priced at a substancial bargain.
I have had to learn the hard way that the only way to invest in market conditions like these is to partner with a private investor who has the cash and is willing to carry long term financing for lease purchase or owner financed buyers.
When I say "long term" I mean anywhere from 2 to 5 years. With a traditional hard money loan, the mortgage is due within a 6 month period.
When you paint yourself into a proverbial corner by borrowing hard money in this market climate, you are only left with three options:
1. Sell to a cash buyer
2. Sell to a pre-qualified buyer
3. Refinance the property and pay exorbent fees.
Whereas if you have a private money lender partner or partner(s) who are willing to carry paper for a longer term at 12% interest, you can close more deals by offering "creative" financing in this market climate.
But my motto is there are only two types of failures:
Failure #1: Never trying to begin with
Failure #2: Giving up when the going gets tough.
Or as Thomas Edison put it, "I didn't fail 999 times while I was inventing the lightbulb, I merely discovered 999 ways in which a lightbulb would not work." Or something to that effect.
This Article has been viewed 144 times. (Not updated in real-time.)
No comments yet.We want your comments! If you can read this, you don't have javascript enabled, so you can't use this comment system. Please enable javascript.