I am often asked by real estate investors that want to purchase wholesale deals how they can find hard money to use to purchase and repair the property.
Let’s start with a brief description of what hard money/equity lenders actually are. They are lenders (often private individuals, but can be companies) that lend based upon the After Repair Value (ARV) of the property. Therefore, they are ideal to use when the condition of the property is such that an investor will be unable to obtain a conventional loan. For instance, if the property needs a new roof, most conventional lenders will not do the loan, but a hard money lender will fund it if the property is being purchased for a big enough discount.
Besides providing the ability to purchase distressed property that needs work, hard money lenders also enable a buyer to purchase a deal quickly, which is a requirement when buying from a wholesaler.
Be aware that because of the lender’s risk in funding such deals, they do charge high interest rates and fees. It is not uncommon to find such lenders charging 15% interest and 2-4 points (each point is equivalent to 1%) on the loan amount. However, if you’ve found a good enough deal and you have a sound exit strategy once the property is repaired, hard money lenders can be a great tool in your arsenal.
Here are the most effective ways to these lenders in your area:
1. Networking – Network with other real estate investors in your area to find out who they are using to fund their deals. Go to investor meetings, e.g. REIA groups, in your area. In fact, it is likely that your local REIA has corporate sponsors, and if so, there is probably at least one hard money lender among those sponsors. If you’re looking for funds quickly and can’t wait to attend the next REIA meeting, you might try searching your local REIA’s website for a list of its corporate sponsors.
2. Internet – There are a variety of ways to find these lenders online. Start by doing a search on a search engine like Google. In addition, social networking sites provide a fantastic resource for finding hard money in your area. If you haven’t already, join every real estate-related group you can find on social networks like Facebook and LinkedIn. After you join, check the postings as you may find hard money lenders that are advertising their services. If not, post a message on the wall or discussion board for each group asking fellow group members for referrals.
3. Data Provider – Finally, here’s a way to find hard money lenders using the power of a list provider, such as Melissa Data or First American Core Logic. Pull a list of absentee owners that have purchased property in your area within the past 6-12 months. Absentee owners are the entries where the tax records mailing address and the property address are different. Be sure that your data provider can provide you with the name of the mortgage holder(s) on each property. It would be a good idea to limit the list to properties that are more likely to be fixer uppers, so you don’t want newer or more expensive properties. Consider limiting your results to those with a purchase price under an appropriate price point and built before, say 1990. Then, cull the list, looking for the lenders that have mortgages on these properties. personal loan singapore