For new real estate investors, creative financing can be intimidating until you learn that it is just another tool in your real estate tool box!
There are two types of real estate financing, Traditional and Hard Money. Traditional financing through banks can provide lower interest rates but will take longer to complete and is far more paperwork intensive. Banks will look at both the borrower and the asset to determine your qualification for the loan. Hard money is primarily asset based and therefore can be a lot more forgiving especially if your credit and experience isn’t stellar. The other real benefit that hard money provides is a quick close. A traditional bank can take from 30 to 45 days to close on a loan for an investment property. Hard money can close usually within 7 to 10 days and the reason it can take that long is due to the appraisal. Your first property investment can bring along a lot of questions and working with an experienced hard money lender who knows the market you are in can be a valuable partner in your real estate investing career! When you find the right lender, they should want to not only lend you the money, but bring you valuable advice so you are successful! Don’t be afraid to ask for help because good hard money lenders will want to build a long term relationship with you and possibly act as a mentor or advisor to help you succeed in your efforts.
Whether you use traditional or hard money in your first deal, you must decide is the deal worth doing! For Fix and Flips you want to buy around 60 to 70% of the ARV (After Repair Value). Keep in mind the cost to rehab needs to stay below 75% ARV so you have some room for your expenses like rehab costs, holding costs (the time it takes you to get the property fixed and sold at closing) and closing costs in order to earn a good profit. Remember you make your profit when you buy the property, not when you sell it.
Some hard money lenders who use their own money to lend can be more flexible with real estate investors, but because they use their own money, sometimes they do run out and this can cause an issue when they are expecting a loan to come back in so they can lend that money back out to you! If their other loans are late in returning and you are looking to close tomorrow this can cause a major issue for the real estate investor. Larger institutional hard money lenders like Axe Lending Group partner with hedge funds, private money and other institutional funds that provide easy access to funds for your next deal. The loans can close typically within 48 hours of the appraisal. If you are in a real time crunch due to your contract with the seller, you can ask for a rush appraisal. This will cost a few hundred dollars more than a regular appraisal but if your deal is worth it, ask for it! If you still don’t have enough time to close, ask your lender to help you negotiate with the seller to extend your closing date. If the seller knows you are approved by the lender for the money, it may convince them to extend the contract with you instead of starting all over with a new buyer.
Another creative financing alternative is to joint venture partner with someone who has more cash than you and is willing to partner with you on your deal. Maybe they can bring the down payment money and you cover the closing costs. Joining forces with another experienced investor can be a great way to have a mentor working side by side with you until you learn the ropes yourself. By the time you have three or more deals under your belt, most lenders will consider you “experienced” and along with a good credit score will provide you with better rates and terms! Check out our rate and terms with our fix and flip program and rent 36-program for property buy and hold loans at www.axelendinggroup.com
The main thing is to build a relationship with your lender and let them know your goals. Once they know where you are going they can help guide you in the right direction!