Working With Hard Money Lenders
By Paul Esajian on May 26, 2014
For every positive change in mortgage guidelines and programs, getting a loan as a self-employed borrower is still very difficult. Since most self-employed borrowers do not show all of the income they make or write off the profits, passing debt to income ratio standards is nearly impossible. Long gone are many of the stated income programs that were used last decade leaving investors with few financing options. One of the options still available is working with hard money lenders. If used properly and in the right situation, this could open up many new avenues and quickly expand your business.
A hard money lender is simply an individual or a group that lends money based on their criteria instead of a large lenders. They are primarily used for short term wholesale or flip deals where they know they can recoup their money in a quick period of time. Some hard money companies get a bad rap because of the high interest rates and fees but considering the alternative this is a very good deal. If you used the money for a 60-90 day period the interest payments should not be that burdensome. Plus, once you establish a relationship and exhibit you know what you are doing you can use this money to close many more deals than you would have over the course of the year.
Much like any traditional lender a hard money lender wants to see proof of means of repayment and a repayment strategy. If you show them profit or loss statement or bank statements showing your deposit history this could be enough to get the ball rolling. Next you will have to show your exit strategy accompanied with a detailed budget for what you are going to do with the money. The more organized you are and the more you have planned the higher chance you will have at getting access to capital. Each company has their own terms, fees and rates but your risk is much less and you will be able to do deals that you normally would not.
The ideal plan when working with hard money is to build up enough of a nest egg that you eventually do not need them and can start buying property cash. This may take several years and even if you do get to that point you still may need funding for bigger projects down the road. As long as the capital is short term and you can provide collateral and a plan for the money you can take advantage of this on many deals to come. Just by closing an additional three to four deals a year you will see a significant increase in your bottom line and you will see your offers getting accepted quicker and with much less hassle.
As an investor, you are always looking for ways to do deals that others can’t. If you are having trouble getting lender approval, reach out to a local hard money lender and see what they can do for you. The more means you have of closing deals, the quicker your business can take off.