If you’ve ever tried to cut an important deal with someone that didn’t move at your pace, you know the pain of a poor fit. When it comes to hard money lending for real estate investing, an incompatible lender is a surefire way to slash your margin and gain far fewer profits than you could have.
Working with the right hard money lenders is one of my top priorities mainly because of my previous, mismatched experiences. When you’re eager to call up your contractors and start a quick renovation, constant back-and-forths with your financier’s underwriters can put a real crimp in your style. But when you’re working hand-in-glove with a lender whose entire livelihood is reliant on making smooth and quick deals with people just like you, everything works much better.
Especially at the start of your real estate investing journey, it’s tough to know the difference between a great New York lender and one that’ll leave you wanting. So, I’ve compiled this guide to help you along your way.
Why Your Hard Money Loan Lenders Matter
Working with solid hard money lenders in NY is critical for your business.
Hard money loans are financial instruments that allow someone to borrow a chunk of money to purchase an asset while using only the value of that asset to backstop the loan. In other words, hard money loans let house flippers get someone else’s money to pay for a property, which they can then renovate and sell for a higher value to repay the loan. If someone defaults on the interest payments on the hard money loan, the “hard” part of the money becomes a lot more apparent—hard money loans always entitle the lender to seize the equity in whatever property the loan enabled the purchase of.
So, hard money loans are a core tool in your real estate investor’s kit. And even though it’s a little scary to take on a financial liability that carries real consequences in the event that you default, hard money loans are one of the only ways that new investors have to afford buying investment properties. After all, banks won’t be willing to issue mortgage after mortgage once your credit report shows that you already have a couple of them on your balance sheet.
The other complication with hard money loans is that hard money lenders aren’t traditional financial institutions, so they don’t need to play by the same set of rules. That means they can ask things from borrowers that other types of lenders do not, such as requiring a percentage of your profits from a flip before issuing the loan. It also means that the underwriting process is a lot more flexible, which can work in your favor once you build a strong relationship with a lender.
Nonetheless, using bad lenders can lead to a host of issues, including:
- Exploitative or disadvantageous repayment schemes
- Delayed funding for time-sensitive deals
- Paying higher-than-standard interest rates or fees
- Losing some or all of your equity in a recently-purchased property
Hitting any of those speed bumps will cost you a lot of money, and it’s almost always a cost that you can’t budget for or mitigate very much. In contrast, when you know a good hard money lender and you build a strong relationship with them, you’ll get a bunch of advantages, such as:
- Favorable rates
- Flexible repayment periods
- Higher loan sizes and loan coverage relative to costs
- Faster underwriting
Of course, no lender is going to come out and say that they’re great to work with or that they’re more expensive than the competition. So let’s get into what you should be looking for when it comes to evaluating any lenders that you come across.
Finding The Right Hard Money Lenders In NY
Hard money lenders in NY are very similar to lenders in other locales, and the features you need to pay attention to are largely the same. With that being said, and depending on the particulars of your business and the sub-market you’re operating in, different elements might be worth emphasizing in your search, so it’s important to understand each of the following factors.
Perhaps the single most important thing to look for in a hard money lender is the interest rate that they’re willing to give you for the loan. Rates tend to start at upwards of 6%, and they can go as high as 25% in some extreme cases. The interest rate you get is a function of how much you’re looking to borrow, when you’re obligated to start repayment, your level of experience with flipping homes, the amount of capital you have on hand, the federal funds rate, and a plethora of other factors which vary depending on the lender’s underwriting practices—many of which I’ll get into shortly.
It’s important to understand that you’re not going to get the most favorable interest rates at the start of your career as a real estate investor. Not all lenders will necessarily reward you for your experience with a lower rate, but some do. The main issue is that new investors rarely have the accumulated capital to satisfy the lender’s anxieties about their ability to repay the loan, which is a bit counterintuitive since the borrower’s capital isn’t collateralizing their funding. It gets better once you can point to a few of your company’s successes.
The repayment period preferred by most hard money lenders ranges from 6 to 24 months. The shorter term you opt for within the ranges they offer, the worse your interest rate will be. The most popular terms for house flippers are for 12 or 18 months, which gives you plenty of time to get control of the property, get your contractors in and out, and then find a buyer to close the project.
On rare occasions, hard money lenders are willing to give an extra month or two on top of these standard repayment periods to make themselves more attractive to borrowers. If you find a lender that does this, you still need to do your diligence to ensure they’re legitimate, but it could be a very good sign that you’re onto a winner.
Hard money lenders offer loans of different sizes. Many will be willing to lend up to $1 million, though there are also typically minimum borrowing amounts. Once again, as you continue working with a lender and build the reputation of your business, some lenders will be willing to bump up the ceiling of the loan size.
The other relevant issue regarding loan sizes is how far large lenders are willing to go relative to the expected after resale value (ARV) of the property and the cost to buy and repair it. Expect loan to value (LTV) ratios between 75% and 90% as the norm, with better terms for experienced investors. Likewise, some hard money lenders in NY will be willing to cover 100% of the cost of renovations, whereas others prefer to cover smaller portions—or potentially none at all.
The Underwriting Process And Its Speed
Time is of the essence for most house flipping projects, and that’s why the underwriting process of the hard money lender matters so much. When a lender doesn’t have enough underwriters or their underwriters are bogged down with other work, it can sometimes take weeks for your loan application to be processed and for the money to enter your account. In contrast, speedy underwriting processes can be closed within a day or two, which is a huge benefit in a hot housing market where other buyers are likely to be waiting in the wings.
The materials you’ll need to submit to get your loan underwritten vary from lender to lender, and it’s common for your second loan with the same lender to be processed faster than the first. Don’t stick around with a slow lender if you can help it.
Quite simply, you need to find a hard money lender that’s experienced in the market where you’re planning to compete. There’s no shortage of hard money lenders in NY, but there are a few lenders who specialize in certain areas and who may eschew the risks or challenges associated with others. Finding a specialist is often a ticket to getting faster approvals and better rates, but the downside is that if you switch markets, you’ll have to start anew with someone else.
Hard money lenders are entitled to attach practically any covenants they want to their funds, and it’s up to you to decide whether it’s worthwhile to proceed after the underwriting process is complete. The additional covenants can range from the mundane and reasonable (such as specifying what to write for the memo field on your repayment check) to the totally bonkers (like specifying that the lender will take a cut of your company’s future revenue whether or not you’re in arrears on your loan). New investors almost always face a larger burden even if they don’t get stuck with unreasonable requirements.
You need to read the fine print and confirm with the lender that you understand it correctly to protect yourself. Better yet, try working with a lender that doesn’t make a habit of attaching additional terms to their loans.
The reputation of a hard money lender is something that is hard to assess but of critical importance. The only real way to know a lender’s reputation is to speak with other investors in your network who have worked with them before.
Reputable hard money lenders tend to be transparent about their rates and terms, and they also tend to have a good idea about whether a given investor will be able to get a decent loan package well before the underwriting process begins. Disreputable lenders will harm your business and potentially your reputation too, so be on the lookout.
These Are The Leading Hard Money Lenders In NY
Now that you’re knowledgeable about the most important factors to appreciate when you’re in the market for a hard money lender in NY, it’s time to peruse a few of the best. I’ve listed the lenders in this section in order of how favorable they are for real estate investors in NY specifically, but any of them could be an attractive partner for your borrowing needs if your business fits their ideal profile.
Kiavi features interest rates as low as 8.75%, with LTVs up to 90% for experienced investors. Kiavi is also one of the faster lenders around with underwriting times ranging around five days on average. You’ll also be able to take out a hard money loan in NY for up to $3 million with this lender, though your rates at the high end will become much better once you can point to a history of profitable flips.
Kiavi has the benefit of working extensively with investors in the NY state area, and it also shares many of the performance metrics of its borrowers for free. That means you can do some great market research using their information if you so please. And I suggest that you do, whether or not you end up using them for financing.
Finance of America
Finance of America (FOA) is a nationwide lender that’s skilled in working with real estate investors of all stripes, and especially house flippers. Like Kiavi, FOA features a ceiling of $3 million in borrowing, and it also has a minimum loan value of $50,000. In terms of its leverage, Finance of America offers LTVs of up to 75%, and up to 100% of renovation costs as long as those costs don’t exceed the maximum LTV. It typically offers repayment periods of 12 months, though for the concession of a higher rate, they can go up to 18 months.
The drawback with this lender is that foreign nationals have worse rates than American citizens, which could be a dealbreaker for some investors. But FOA is explicit in stating that more experienced flippers get better terms, so it’s a good lender to start a relationship with.
RCN Capital is yet another nationwide lender that serves NY, and it finances loans for up to $7.5 million, which is quite high. It’s generally willing to cover LTVs up to 90%, and its interest rates start at 8.25%, which is also slightly high. Most of RCN’s loan requests are processed within 10 days, which might be too slow for some people. For the payback period, the standard 12-month term applies, though a 6-month extension is possible in some cases. The other wrinkle is that it will perform a credit check as part of the underwriting process, so people with poor credit will have a hard time securing a decent interest rate.
In a nutshell, RCN is the go-to hard money lender in NY for larger deals. If you plan on taking on many extensive renovation projects for ritzy homes, it could be right up your alley.
Residential Capital Partners
Residential Capital Partners (RCP) issues loans for values between $75,000 and $1.25 million, putting it in the middle of the road. It tends to work with more experienced investors as it requires at least two prior successful flips as part of its underwriting process. RCP finances loans for after resale values of up to 70%, which is slightly lower than other hard money lenders in NY. You’ll need to act fast, though, as its standard loan term is only 9 months.
Make no mistake, this is not the right lender for new investors. For veterans, though, you’ll have the privilege of working with some of the most skilled underwriters in the business. And that means you can get your loan application processed in as few as two days, which is nearly impossible to beat.
Silver Hill Funding, LLC
Silver Hill is a nationwide lender that has traditionally specialized in serving real estate investors through its small-balance commercial loan program and long-term rental financing solutions. While it is a relatively new entrant to fix ‘n flip lending, the team is leaning on their many years of experience to build a platform from the ground up that specifically addresses the needs of real estate investors today, including reliability, competitive rates, and closing speed.
Thanks to an on-the-ground presence in multiple states, Silver Hill knows and understands nation-wide real estate markets, including NY. It offers loans sized up to 90% of cost for experienced investors and is also able to offer competitive terms to less experienced or new investors. Silver Hill can also offer you funds to complete your renovations, helping you make your dollars go further. Finally, if you would like to hold on to your investment to generate rental income, Silver Hill can offer you a long-term loan based on the cash-flow generated by your property.
Silver Hill has funds available for renovations, long-term rental loans, and doesn’t require appraisals prior to close.
Expanding Your Business in NY
While any of the above hard money lenders in NY could be a good fit for your company, finding a strong one isn’t the only thing you’ll need to do. You’ll also need to have a reliable source for leads, build a network of like-minded investors, and stay in touch with the best contractors you can find. And then, of course, you’ll need to scout the market for properties, assign a pre-renovation and post-renovation value to them, and move on the ones that are the most appealing.
If all of that sounds complicated, don’t be too intimidated—you’ll learn with experience. But you don’t need to learn alone. If you become an independently owned and operated HomeVestors® franchise owner, your house flipping life will get a lot easier.
My company wouldn’t have gotten off the ground without the mentorship and contacts that franchising with HomeVestors® got for me, and it’s one of the easiest ways to get started with real estate investing. With HomeVestors®, you’ll learn how to use housing valuation programs, how to build a dealbook with strong leads, and how to pick the best opportunities to pursue. You’ll also have a digital hotline to pre-vetted hard money lenders in NY who are eager to work with competent investors. And when it comes to getting financing for your company, HomeVestors® can help you avoid many common pitfalls too. I can’t recommend it highly enough.
Want to learn more about the best options for hard money financing from the leading hard money lenders in NY? Request information about becoming a HomeVestors® franchise owner today.
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It’s time to get serious about your real estate business. If you want to learn more about the best places to invest in real estate in California, contact HomeVestors and request more information on franchise opportunities.