Professional real estate investors are no strangers to the use of hard money. If you’ve been buying and renovating properties to sell for any length of time, you’ve probably relied on hard money loans at some point in your career. I have used them many times myself. But, when I was brand new at this, I knew very little about how to get a hard money loan for my first investment house. Thankfully, I got some guidance from more experienced colleagues, like my friend Dan. He is a long-time real estate investor in the tri-state area of New York, New Jersey, and Connecticut and works with several hard money lenders that serve investors in those states and beyond. The advice he gave me when I was just starting out proved to be invaluable for funding my projects. So, if you’re just beginning a career in real estate investing, I’d like to pass that advice on to you.
Getting a Hard Money Loan as a New Investor
Flipping houses is a good business to be in. But, the nature of the game requires that you move swiftly when you find an undervalued property to buy. More often than not, you have to offer competitive terms—like a fast close—to win the deal then renovate quickly to realize a good ROI. To do both, you’ve got to get the funds fast.
Unfortunately, less experienced investors sometimes make the mistake of seeking more traditional products, like a Fannie Mae Homestyle or the 203(k) loan. However, these loans are really made for individuals and families who want to buy a house and live in it while they fix it up. The 203(k) loans, in particular, aren’t suitable for investors because they can take months to close—even the so-called “fast track” renovation loans of $35k or less. A distressed homeowner typically needs to offload their home quickly, which is why they’re willing to sell them at a discount. Waiting months for a loan to fund and close on a home is not an option for you or the homeowner.
That’s why you’re better off getting a hard money lender to work with you so you can close on a home quickly and start the rehab shortly thereafter, with the right amount of funds. One snag you might hit, however, is getting a lender to work with you if you’ve never invested in real estate. If a hard money lender asks for a real estate investor credibility kit that includes details about your investing experience and background or requires that you have a minimum number of renovated properties under your belt, your chances of getting a loan from a reputable lender can be slim. You might have some leverage, though, if you’ve got adequate liquid assets to use as collateral and a great investment property on your hands.
Even then, you should also try partnering with a more experienced investor on your first few deals to build capital and know-how. You’ll have a better chance of gaining the trust and getting a loan from a reputable lender when you’ve partnered with someone who’s successfully bought and rehabbed houses with healthy returns. Experience speaks volumes to hard money lenders—it’s your best collateral.
Aside from partnering with a more experienced real estate investor on your first few deals, it’s not a bad idea to have a decent FICO score as well. Though hard money lenders do not typically have strict guidelines regarding credit ratings—some ask for a FICO of only 550, for example—a score that’s at or above the typical FHA requirement of 620 implies less risk for the lender. If you’ve been responsible with other creditors in the past and have a good FICO score to show for it, hard money lenders are more likely to loan to you.
In short, there are a number of steps you can take to better your chances of getting a hard money loan when you’re new to real estate investing. But your first, and possibly best, step to securing the money you need is to improve your network.
Improve Your Network and Get the Money You Need
When I first started investing in real estate, I didn’t have enough of my own money to buy and renovate houses. My family and friends didn’t have enough to help me, either. But, thanks to Dan’s advice, I found a couple of colleagues who had access to hard money lenders that they were willing to introduce to me on my first few deals so that I could use hard money to close quickly on my properties.
One of those colleagues was an independently owned and operated HomeVestors® franchisee. I watched his career really take off and decided to follow suit. Once I opened my own HomeVestors® franchise, I had access to an even larger network of fellow franchisees who were just as helpful as he was. Now, not only do I never have trouble getting the money I need to fund my projects, I have a network I can rely on should I have trouble with anything at all.
If you’re ready to make financing your real estate portfolio a little easier, take my advice and get a hardworking network behind you. Contact HomeVestors today!
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