Reality TV shows and shady real estate “gurus” often make it appear that making money on real estate investments is super simple and only needs a bit of optimism and then–BAM!–piles of money. Most people realize that’s entirely unrealistic and do lots of research before plunging into the world of hard money loans. Everyone’s process is a little bit different, developed over the years and shaped by the unique factors of the real estate market in their area. As you develop working relationships with hard money lenders, you’ll begin to hone your own process of researching possible properties, gathering a rehab team, and selling property to turn a profit.
Hard Money Lenders Want to See You’ve Done Due Diligence on Potential Properties
While hard money loans are usually easier to get than conventional loans, you still need to demonstrate to a lender that you are a good risk. You do this by having a clear plan. You need to demonstrate that the property you want the loan for will sell for enough to cover your loan. In order to show this, you’ll have to dive into the local real estate market. Look up properties that are in a similar current condition and see how much they are selling for. This will help you ensure you’re not overpaying. Then you want to check out properties that have been rehabbed to the level you are planning to do.
You need to estimate how much money it will take to get the property in good shape. We have a whole series on how to put offers on houses or commercial structures that take into account all the costs of the loan and the rehab work. This is the kind of work your lender will want to see to make sure that they will get their money back.
Finally, have a clear endgame for the property. Are you going to sell it to recoup your costs? What happens if the market takes a downturn–do you have a plan in place? You should! There are options, from extending the term of your loan, to refinancing it into a conventional loan, to selling another property to cover the costs. You’ll look like a more appealing client, and be in a safer position in general, if you have a Plan B or even C and D.
LendingXpress has lots of experience with hard money lending in California. Call us to discuss your real estate investment plans.