If you’re considering getting a hard money loan and working with a private money lender to finance a real estate purchase, there are several factors you need to consider before signing on the dotted line.
1. Be sure to scope out the neighborhood where you intend to buy. You might find the perfect property, but what about everything else? Drive around to see how the rest of the area feels. Give the local police department a call and find out what the crime rate is for the area. Check out the local schools online–are they at least average? You should also make sure that there are local shops within a short drive–the grocery store, gas station, and at least a few restaurants will make the property more desirable.
Have a Budget for Your Project Before Contacting a Private Money Lender
2. Make a realistic budget for repairs. Take your contractor along for a walk-through to determine a list of work that will be done. Discuss the costs in detail. Be sure to leave 10 to 15% of your budget open to take care of repairs that come up during the process. This will keep your project from imploding when the unexpected happens.
3. While you’re working on budgeting money, make a timeline, too. Talk with your contractor about what order to start repairs and how long each aspect of the project will take. Be sure to factor in extra time, since you can almost guarantee something will come up that slows down the project.
4. Once you have your budget and timeline, check out comparable properties in the area. This will help you determine how big your loan should be and how much of a profit you will make. Be realistic, but don’t let anxieties keep you from a good deal.
5. Before applying for the hard money loan, shop around to make sure you are getting an experienced lender who will help you find the best financing option for your project.
6. Don’t make the perfect the enemy of the good enough. It’s tempting to do a bunch of “little things” at the last minute to make the property perfect. Before you start off on any extra small projects, sit down and calculate how much time they will take and how much money you’ll have to spend on them. Factor in not just the cost of materials and labor but the extra interest you’ll have to pay on the loan. It’s probably not worth it. Get things looking good and let the new owner add the finishing touches.
At LendingXpress, we have a lot of experience helping people get financing to rehab properties. Give us a call so we can help you get started on your next project!