Reasons smart flippers use hard money 

Get ahead with private real estate funding 

Some real estate investors get hung up on the high cost of hard money. Yes, hard money rates are significantly higher than conventional loans, but the barrier to entry is much lower. The pre-closing process is also a lot less trouble and effort for the borrower.

You’ll know very early in the process whether a hard money lender will do your deal; banks are not nearly as quick to commit. Hard money is expensive, but sometimes it’s not the cost but the availability that’s important. If you don’t do the deal at all, that could be a lot more expensive.  

Lots of real estate investors we work with 100% qualify for conventional loans, with longer terms and lower rates, but they use our loans as bridge financing. If you get something under contract at a discount, you could easily lose the deal if your lender delays closing, which is so very common.

Sellers are not typically obligated to wait for you as a buyer. If you’re getting an amazing deal, you need a more reliable source of funding.

Jump through all those bank hoops for a longer-term loan after you take down the deal, not while you’re trying to get it closed. If you don’t get to buy it, that lower interest rate won’t matter.  

5 reasons people use hard money loans over a conventional loan:

1. Speed

Hard money lenders can close much faster than a conventional bank lender. In Austin, Little City can even fund hard money loans without an appraisal, which is exceedingly rare in our industry. Appraisals add weeks to the loan process.

We close most deals in 5-10 business days. If an appraisal is required, we typically only need 3 days from the day we receive it to close.

Banks will not normally promise anything less than 21 days from contract to close, and often take much longer.  The average turnaround time to close a conventional loan is 57 days in 2021, according to ICE Mortgage Technology (formerly Ellie Mae, the mortgage applications processor).

2. Convenience

It takes hours of effort to get approved for a conventional loan. Bank lenders make you feel like you need a full-time assistant to track down and securely send all the documentation they need. It starts to feel like they couldn’t possibly ask for any other documents, and then they do. And then they’ll ask you to sign and date it all over again. 

Don’t underestimate how much time bank documentation will demand. Here’s another post with a very, very long list of things you might need to provide a conventional lender to get your loan approved.

Our hard money loan application is about a page long. You may also need to provide a personal financial statement. That’s typically all we require!

3. Low Effort

Hard money lenders don’t need your tax returns. We don’t need W2s. We don’t usually need bank statements. Most of our transactions don’t even require a personal financial statement (PFS).

Banks seem to have an endless stream of document requests. And they seem to snowball – one bank statement leads to a request for the source of a deposit, which leads to some other documentation from that party, and a whole history of that relationship, and so on.

True asset-based loans are much less effort.  

4. Reliability

Banks find reasons to decline loans at the last minute all the time. You can do everything right and then some minor technicality can easily kill the deal. Anything from income consistency and sources to property condition issues or vacancies can jeopardize a bank loan.

Every time you send a document, they’re getting another chance to say “no.” It’s extremely rare for a hard money lender to let you down because we don’t have nearly as many rules and qualifications, aka “reasons to say no,” as a bank lender does.

Hard money is far more reliable and more likely to close on time.  

5. More Favorable Refinance Terms

When you do renovations with a hard money lender, prior to refinancing into permanent financing, you’re able to refinance based on the remodeled appraised value instead of your purchase price. This can be a very important distinction.  

Here’s an example. Let’s say you bought a central Austin property for $400k but it was worth $1MM after $250k in renovations. A hard money lender would fund $700k, pretty much the whole project with almost nothing out of pocket. The best part is, when construction is complete, the investor could use the appraised value of $1MM and finance 80% of that, instead of 80% of their original $400k purchase price, or $320k.

Using hard money first makes the difference between a bank’s $800k loan offer and a $320k loan offer. It really maximizes the investor’s cash investment and optimizes their options with the long-term loan. It’s worth the higher interest cost in the short-term because if you use hard money first, you’re able to borrow so much more. 

Do you have a real estate deal in your pipeline? We fund Texas real estate investments. Apply today and get a term sheet tomorrow. Unlock your flipping investment potential with private real estate funding. 

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