Thanks Don and Seth for the comments. If there are any hard money lenders out there who deal in raw land, I would be interested to hear what kind of terms are typical.
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My business specializes in hard money loans, and this is an article that I can really appreciate. Thank you for writing this article! Awesome info! I thought I needed a pof from my hard money lender to make an offer but I can just submit earnest money. My friend knows some people in this area. How much should I ask for? Hi Seth, Thank you for such an informative article. My question is this: what should you avoid when looking for a private lender? Also, when using a private lender how are the funds usually distributed?
Direct deposit to your account? Hi Breanna, thanks for checking out the article! As for your second question, the funds would usually be advanced to the title company or closing attorney, who would then advance it to the seller once all the closing documents have been completed not unlike a typical, conventionally financed real estate transaction. I think getting a hard money loan to finance construction, flips, etc. That is if he has done good research on the land beforehand and is confident the sale will pay off. Getting your short term loans secured by real estate is a good way to stay secure.
I like that short term loans are often paid off in a 12 month period. I am glad to know that short term loans can still accumulate interest over time. Awesome post! I wanted loan for construction purpose but conventional money lending process would have wasted much of time and I wanted it as soon as possible. So i opted for hard money loans. I had many confusions about the entire process but the this post was of great help.
Thank you.! Is this a service that you offer? Is this a typical service offered by lending firms across the country? One site you might want to check out is RealtyShares. It is a good idea to ask right up front what loans the lenders are willing to do. Having good communication is always a good thing, especially when it comes to something as important as loans. I would have never considered using a hard money loan to flip homes. It makes sense to use it when you need money quickly and for a short period of time.
It may help to contact a hard money lender before you begin looking at houses to flip so you are prepared to get the loan sooner. Thanks for sharing your thoughts Kendall! Hi I need hard money for I want to know how many percent down I have to put for that amount thanks. I do flips. My lenders loan the price of the house plus the cost of rehab. Provided the ARV is worth it. Include any other expenses such as liens, taxes due, etc. Write that down. This is the price you will list the house for. I say this because houses that are listed below market value sell really fast and that is what you want.
I rent the furniture for one month from a furniture rental place-including lamps. I also keep a few totes in my garage filled with bedspreads, nick-knacks, a few flower arrangements, towels and accessories for the bathrooms, place mats and service for 4 of dishes and silverware and glasses and a centerpiece, a basket of fake fruit for the kitchen counter and bottle of empty wine with two wine glasses and fake cheese and crackers on a cutting board got it online.
I also add a canister set and a cooking utensils in a crock near the stove. Use Command Hooks. I use these same props over and over again. In one afternoon you can have the furniture delivered and set up for you, do some decorating from your totes and sit back and let the bidding wars happen! Always pay for the entire month of furnishings even if you do not use them for the whole month. Remember, it it a tax write off.
Happy Rehabbing! Hello Lynn, thanks for sharing, it is really insightful. I was wondering if you could please share information about some of the hard money lenders you have found reliable and honest in their dealings. Toni, CA. Hi Lynn, I am a first time flipper and need to go the hard money route due to a foreclosure in my past my ex husband made a bad investment deal that wound up being a Ponzi scheme.
Do you have a hard money lender you trust that you could recommend to me? I have read so many articles about people taking advantage of newcomers to this field. Very helpful! I am looking for mentors, anyone willing to help. Very much appreciated. Thank you!
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I need a lender, do I first find a home then a lender or should I seek out a lender and prequalify so I dont waste my time finding a property then being turned down…. They base their short-term-lending lending on ARV after repair value and not your credit. They are very strict about the comps, both sold and on the market. I have a plan, and you should too. They fit into my plan very well. I use them for this reason: I use their money to buy, rehab and flip.
The money I make on the sale goes toward my personal cash purchase of homes that I keep and rent. I have 4 rentals that I own outright so far. When I get to 10, I will stop buying rentals, save the money I make on my flips and use it to continue my flips with my own money, therefor eliminating the need for Do Hard Money any more. Hi, We have been trying to get a hard money loan through a broker. This has been a completely different process than the one stated here which makes me very nervous.
We are going on almost 45 days still with no loan details!!! We are using someone who was recommended to us and it has been nothing but a stressful nightmare. Actually unsure of what to do at this point. Sorry to hear about the difficulty Christina. I am a private investor and have recently been approached to give a hard money loan. When talking liquid capital to repay the interest.
How long should the outlook be on that? Time frame. From a hard money lending perspective is this a realistic requirement? Thank you for sharing with future investors what a hard money loan is. The truth is, investing in rental property can be difficult, especially when just starting out. Though this may not be an ideal solution for everyone, it is always good to be aware of the various options available for financing property so you can reach your portfolio goals. I would love to add that things such as using current equity, partnering up, or even considering a lease with the potential to buy later, are other creative ways of financing your next investment property.
Starting to look for a hard money lender to finance a fixer upper multi-family, but finding that no one wants to finance a small amount.. The bank JUST started foreclosure. I am trying to buy an owner occupied home in Tennessee. My credit is at ANy idea where I should look for a loan? This is my first investment. I am working a deal with an experienced flipper , that in exchange for my investment he will allow me to be part of the deal and walk me through the process.
How do I make sure I am not taken advantage of, what are the dangers of this, what kind of contract do I need? Nice article. Looking to do my first hard money loan. I learned the bank is looking for 2M for the property. The property has been through the foreclosure process for 2. Estimated value of the property will be 4M. I plan to try and get it for under 2M and get conventional financing. I then plan to move in during the renovation process then sell and move out.
Is this something a hard money lender would potentially do if I am also getting a conventional loan? Despite the higher rate, the simple process and promptness of hard money loans makes these the best option to leverage opportunities that you would have to otherwise miss. Would you be able to give an example of a hard money loan from start to finish? Nothing to detailed, just the flow from lender to borrower and back. I wish you all the best. In my situation, would a hard money loan be a good option for maybe a year to bring up my credit score and then look to refinance at better rates??
We are building our second custom home. Getting a construction loan these days is nothing like it was in This time last fall it was a months-long nightmare. We have excellent credit. All the comps in our area since last April were short sales. We did a one-time close, particularly because we were very unsure if the rates would sky rocket in the coming months. This is exactly the way that many development companies do things, so surely if you are a self builder you may as well follow their example, they will understand the industry and financing of it better than you or I could even with days and days of research.
They basically already know what works! I got behind in my property taxes and need to settle before I lose my home. Would there be anyway I can borrow this money. I would greatly appreciate it. Can you please help. Thank you for the great info! We are trying to purchase an REO single family home with the intent of living in it. Only cash. Could we take out a HML for this type of purchase, make the necessary repairs and then get a long-term mortgage to pay of the HML?
Not a flip…we wish to move into the home with our family. And if these are about right for the amount and time frame? This really is Hard Money Seth. Hard money loans are ideal to start a fix and flip property business with, since banks also want a certain credibility regarding past history in the business. It is amazing and wonderful to visit your blog. Thank you for sharing your knowledge on hard money loan. I am looking to read more post from you. Back in we had one major drawback.
Hubby lost his job, I had an accident that made me quit my job as well. We collected thousands of money from our Home Equity line of credit HELOC account which works sort of like a credit card to raise our son through college. This caused our credit scores to drop drastically, the bank almost terminated our line of credit and at that point I almost regretted my existence in life. My special thanks goes to this genius hacker, we purchased our second home a couple of weeks ago for our son.
As we have promised to give him more clients if he should successfully fix our problems. We are living testimonies and confident of this miracle worker to handle all jobs, I will implore everyone facing challenges with credit scores, credit report,bankruptcy,mortgage issues to reach him on: pyramideye. This is totally off base from the conversation but this is my story. I lost my job in and could not find any job that paid anywhere what I needed.
Decided I would start my own business and then I suffered a stroke. Almost a year to the day while building strength to get back to work I surrender a second stroke. Then a heart operation in hopes of not having a third one. Finally got disability and had everything in place. Called Wells Fargo to apply for loan mod.
Could I get a hard money loan? That would depend on the lender… but I have to imagine your chances would be much stronger than working with a conventional lender. Hi, What lender do you use.? I have a great deal on a multifamily in NY and need help to fund this deal Asap.
A few days ago we almost closed on a forclosure. Ran into appraisal that found health safety issues. Conventional lender requirements would not service the loan or escrow repairs. Seller would make no fixes. From our understanding the Sellers will not accept FHA rehab. We have a home currently with about , in equity. Is hard money or private money loan our only option, would it be a good option? Or what type of loan would be ideal?
Current home estimated , sale, , loan balance. Home trying to purchase, , Any lenders you recommend? Trying to figure out, last attempt at this home before walking away. Would love to make this work. Your advice is very much appreciated!! Please add REtipster. Thank you for supporting. We promise you will find ample value from our website. In this article, we will go over the basics of hard money loans, including: What hard money loans are all about. The types of properties and deals hard money loans are appropriate for.
What kind of interest rates and loan to value ratios to expect. Standard requirements of the borrower. Where to find an experienced hard money lender to work with. What is a Hard Money Loan? Success requires decision and action The market moves fast. Did you find this article to be helpful? Subscribe today! Get all the latest news! Learn more. Popular Articles. Recent Popular Trending Podcasts. Related articles.
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April 8, at am. Nina Johnson says:. January 9, at pm. You can also hire a professional property manager. But that will, of course, come with a price. If you are a renter, yourself, then you could consider subleasing a basement, spare room or an attic to a tenant. This is becoming increasingly common in big cities, where the cost of rent is often unaffordable.
Case in point: one of my friends moved to San Francisco to pursue a career in stand-up comedy. Storage space can also be a hot commodity. If you have a spare closet or garage, then you may be able to rent it for storage purposes. Further, if you have a parking spot on your property, consider leasing it. You might do so throughout the year or just during times of high demand. Parking space is the simplest form of real estate. The risks of subleasing a room or storage area are similar to owning a rental property.
In addition, you may need to seek permission from your landlord. They are popular income producing assets for both American and Canadians. They are known for generating long-term, consistent revenue. Some of the largest real estate companies in the world are REITs. They often own tens of millions of rentable square feet. REITs concentrate on rental real estate, similar to what we discussed above.
They focus on properties that generate income because tax laws encourage them to distribute most of their net earnings to their investors. As such, REITs will usually stay away from raw land or long-term development projects. In most cases, they seek to buy real estate that either currently has, or will soon have, tenants.
One of the attractions of REITs is that they provide a vehicle for retail investors to participate in otherwise unaffordable real estate. Most of us are precluded from owning properties much larger than duplexes or small apartment buildings. But investing in REITs can give you exposure to not just one or two, but dozens of massive structures. Real estate investment trusts often specialize in a certain class of property, like offices, apartment buildings or warehouses.
Property types can react differently to the economy, so investors can diversify within the industry. For instance, if they believe that the economy will grow, they might buy retail or commercial REITs, which should theoretically perform well alongside businesses. But if they are skeptical about the future, investors may choose defensive REITs, like ones that buy apartment buildings and data storage facilities.
Apartment REITs focus on buying apartment buildings. These income producing assets rent to residential tenants. Each building, especially large ones, can be a source of hundreds of revenue streams. Apartment REITs are considered defensive assets because people will always need a place to live. Regardless of how the economy performs, there will always be a demand for rental housing.
However, they can underperform during times of economic strength. As people build more wealth, they will typically try to buy a home. The demand for apartment buildings can therefore wade. Note: apartment buildings were one of the best performing investments in the wake of the Great Recession. With over 10, people turning 65 years-old each day in the US, many have their eyes on assisted-living residences. A lot of analysts consider them to be recession-proof investments. As people age, they usually require more medical attention.
Investors who find senior living properties attractive will also consider health care REITs. They traditionally make for good income producing investments when the economy is strong. But when it weakens, tenants may go bankrupt or search for alternative space. That can put office REITs in a precarious position. Further, many office REITs have been hurt by the rise of the internet. Businesses rely less on physical space than they once did. Most can function via telephone and laptop. Working areas are not always a necessity anymore. E-commerce has allowed customers to make purchases online and internationally.
However, the products that they buy still need be kept somewhere. Thus, companies like Amazon, Walmart, Google and Ali Baba occupy millions of square feet of storage space around the world. They own buildings that house hardware used by companies to store consumer data. All of that is stored in computing infrastructure. Data center REITs provide safe and temperate areas for businesses to keep that machinery.
They are seen as defensive assets because of how important data is to modern life. They own thousands, even millions, of acres of land that they can use to sell wood, harvest resources oil, gas, minerals, etc. Timberland REITs, however, are deeply connected to the housing market and, thus, the economy. They can quickly crater if markets weaken. Similar to timberland REITs, however, they are closely tied to the economy. But many also see them as a means of capitalizing on baby boomers. As people retire, they usually hope to take more vacations.
They charge interest and fees for their loans and secure them with mortgages. Mortgage REITs often participate in shorter-term commercial projects, rather than long-term residential mortgages. They are popular income producing assets in the USA, but are not widely available in Canada. They can be good income producing assets for investors who want dual exposure to property. However, they growing across Europe, Africa and Asia.
REITs can be either publicly-traded or privately held. Large, big-brand tenants do not automatically equate to profitability. Thousands of people lost their investment. In addition, REITs can be affected by rising interest rates. They generally carry vast sums of debts usually in the form of mortgages , so they can be less profitable if the cost of servicing their loans rises.
The value of publicly-traded REITs, at least in the short term, usually sinks whenever there is an interest rate hike. People can log into the site, view available deals and invest at their discretion. Aside from being potentially a good income producing asset with a low entry barrier, property crowdfunding provides capital to real estate managers who were previously dependent on private equity.
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It helps levels the playing field for both investors and developers. They are places through which investments are pitched to investors, rather than investments, themselves. Property crowdfunding investments have at least the same risks as any real estate deal. However, they are also illiquid. You should not invest unless you are willing to part with your capital for a few years. They are exclusive to Canada. As the name indicates, they invest in mortgages.
All of its investments must be made within Canada, although it may have foreign investors. In practice, MICs lend most of their money to borrowers, securing the loans with mortgages on real estate. They earn income by charging interest and fees on their loans. Few MICs will keep a large percentage of their portfolios in cash or insured deposits because of their low returns. People buy into them because they are income producing assets that can provide a high yield.
Banks typically make long-term loans in the form of mortgages, lines of credit and credit cards. MICs usually offer shorter-term loans, especially when dealing with real estate developers and small businesses. They often provide bridge or mezzanine financing with maturity dates of under one year. People and companies generally borrow from MICs with the goal of refinancing with a bank later on. In the meantime, they are willing to pay a higher interest rate. Mortgage Investment Corporations can be both privately-held or publicly-traded.
One of the main risks of MICs — and mortgage lending in general — is lending at an aggressive loan-to-value LTV ratio. As with other mortgage loans, the lender s profit through fees and interest payments. Mortgage syndicates differ from MICs and other mortgage funds.
The latter are businesses that investors own shares in. Mortgage syndicates invest in individual loans. They are not diversified. Mortgage syndicates are often managed by an administrator, who makes decisions on behalf of the group. Mortgage syndicates are most widely available in Canada and the USA. But depending on the opportunity, syndicated mortgages might be in second or third position, thus reducing security.
The risk profile of a syndicated mortgage should be assessed on a case-by-case basis. Bonds and debentures are loans issued by governments and businesses to raise capital. In exchange for funding, the issuer typically pays interest on the loan, thus making it a popular income producing asset.
Interest payments are generally made semi-annually. They are usually publicly-traded. The risk profile for these investments can range between very low and very high. It depends on the credit-worthiness of the borrower e. Note: bonds are usually secured by specific assets, whereas debentures are unsecured. P2P lending firms connect retail lenders with borrowers online.
On one end, a borrower applies for a loan. The loans are usually syndicated into small portions. For investors, the result has been access to an income producing asset that was traditionally reserved for banks. They can now easily participate in interest payments generated from loans, which are paid monthly or quarterly. Borrowers, too, have benefited from access to newfound capital. Given the ease to invest and its broadening of the credit markets, P2P lending will likely become an ever-popular income producing asset in the future.
The goal is to earn a financial return for investors, minus management fees and expenses. A lot of funds concentrate on generating revenue for their investors and can thus be powerful income producing assets. Investment funds can be either private or public. Many trade on the stock market and can be purchased through a brokerage account. One of their biggest advantages is the ability to give investors diversity across a range of holdings. As well, investors can use them to participate in sectors that they may not want to — or know how to — do so, themselves.
They often focus on income-producing real estate with rent-paying tenants. Their risk profiles can vary greatly, depending on the underlying assets. Some real estate funds are safe, secure investments, while others can be quite hazardous. A single-asset real estate company is a business that raises capital from investors and then deploys it into one property.
They are not technically funds, but they share similarities. For example, both will usually have a management team and investors in both are purchasing securities, rather than direct real estate. Mortgage funds invest in mortgage loans and other mortgage-backed securities. Since loans generally have fixed interest payment schedules, they can provide mortgage funds with a reliable revenue stream. They are similar to MICs, although they lack both their restrictions and tax advantages.
Since dividends are usually paid quarterly, dividend funds often make their distributions to investors quarterly, too. Dividend growth funds invest in companies that have a history of not only paying dividends, but that have also increased them and are expected to continue to do so. Theoretically, investing for dividend growth means buying great companies that are continuously becoming more profitable.
As such, while their dividend payments may rise, so do their debts. They are usually a staple for income oriented investors. Some bond funds that invest heavily in municipal bonds can have tax advantages. They can be a good way to gain exposure to a diverse group of REITs. They frequently own dividend-paying stocks and bonds and can thus be good income generating assets. They can range from mortgages, to sovereign debts, to corporate debts, to consumer financing agreements and business financing products.
Royalty funds invest in businesses that usually have a steady stream of cash flow. Instead of earning dividends from their holdings, royalty funds typically receive a portion of the gross or net incomes. Exchange-traded funds ETFs are investment funds that trade on the stock market. In most cases, they are not actively managed. Instead, they try to replicate the performance of a particular index, such as the New York Stock Exchange or gold bullion prices, etc.
An ETF that tries to copy the price of silver, for instance, would rise and fall in value in tandem with the price of that commodity. ETFs can generate revenue when they invest in income producing assets, such as the ones we are currently discussing. There are also plenty of ETFs in sectors that are known to produce cash flow, such as real estate, energy and financial services. Moreover, since ETFs trade on the stock market, they can sometimes be mis-priced if they are oversold.
An astute investor can purchase an income producing ETF at a discount, enjoy cash flow from it and sell for a profit later on. One of the primary features of ETFs is that they generally have low management expenses. Similar to ETFs, index funds also aim to replicate the performance of an index. Therefore, they can serve as good income generating assets. However, index funds are mutual funds and do not trade on the stock market. Their unit prices hinge on the values of their underlying holdings — not on the supply of and demand for them.
Index funds cannot be actively-traded, since mutual funds purchases take place after the close of business. Whether an ETF or an index fund is a better investment depends on the particular fund. In general terms, though, index funds are believed to be superior for those investing smaller sums. When you buy into a fund, you are ultimately delegating your investment decisions to a fund manager. That can be problematic if the manager performs poorly or is untrustworthy. As this article indicated, there has been an emergence of new lending opportunities in recent years. The business is no longer controlled by banks.
Some people incorrectly equate hard money lending with loan-sharking. They assume that private lenders take advantage of desperate borrowers. There is a large market for loans that are not funded by traditional lenders. In most cases, the legal expenses will be borne by the borrower. Master Limited Partnerships are an American business structure. They are publicly-traded, tax-efficient companies that usually invest in real estate and resource-based ventures, like mines, pipelines and energy projects. Like royalty funds, MLPs generally concentrate on revenue-producing businesses. They are known for providing investors with consistent cash flow.
MLPs usually focus on singular projects, like a group of oil wells or a pipeline development. As such, their risks and returns are concentrated. Dividend stocks are publicly-traded companies that regularly distribute their profits and earnings to investors. They are widely available in the US and Canada, as well as internationally. Most dividend stocks pay quarterly. However, there are also hundreds of publicly-traded companies that do so on a monthly basis.
The ability to regularly raise dividend payments can be indicative of financial health. Australian Monthly Income Investments. Canadian Monthly Income Investments. Dividends are not guaranteed. It is possible for a company to reduce or even cease dividend payments. Further, like any stock, they can also depreciate in price. When a homeowner is in arrears on her property taxes, the government may issue a lien similar to a mortgage, although it will usually outrank it on that property.
It may also charge high sums of interest on the outstanding balance. The government then auctions that lien to bidders investors. The winning investor buys the lien from the government and has effectively paid the property taxes for the homeowner. However, the homeowner must now repay that debt — along with interest. Tax liens can be great income producing asset. Further, the default rate is quite low since homeowners do not want to lose their homes over property taxes.
Buying tax lien certificates can require travelling to auctions, making them a hassle for foreign non-local investors. As well, their values are usually bid up during the auction process, which reduces their yield.
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Further, they can require even more travel if the investor is forced to deal with a foreclosure. They are typically offered by banks and other authorized financial institutions. However, her money is locked up for an agreed-upon time 3 months, 6 months, 1 year, 5 years, etc. The longer she keeps her money in the product, the greater her annual return will be.
Second, people who wish to earn a stable return for a short period of time. For instance, if you plan to purchase a property in 3 months and would like a safe place to deploy your capital until then, you might buy a certificate of deposit. In essence, the investor is giving the bank a low-interest loan, which the bank then lends to other b orrowers. However, equivalents exist in most countries.
There is no real risk of capital loss. As such, the bank usually pays an interest rate only slightly above what it would on a savings account. It is a very low-yielding investment. There is also no opportunity for an appreciation of capital.
An annuity is an insurance product that can be an income producing asset. The annuitant you deposit funds with an insurance company, which then guarantees a fixed amount of payments to you. In essence, the company gives your money back, plus interest, over a period of time.
For example, you might request monthly payments for 20 years or for the rest of your life. Annuities are commonly used for retirement planning. They are illiquid and cannot be cashed out. Annuities do not always come with built-in inflation protection. Further, an annuity from a private business may not be honored if that company goes out of business. Building a business is one of the best ways to build an income-producing asset. The returns on your effort can be virtually unlimited. Personally, I have a few. Drop shipping is a supply-management technique, which has evolved into a popular online business.
The seller you sells a product that it does not keep in stock. It only purchases the item after it has received an order, and then has it delivered directly to the buyer. As such, the seller never even sees the product. Drop shipping allows the seller to avoid the cost of having inventory, which is often the most expensive part of owning a business. Instead of buying t-shirts and keeping them in my office, I would wait until an order for one was placed.