Residential hard money lenders are seeing an increase in opportunities to buy, remodel and resell or rent depressed properties around the Houston area. With the economy improving, albeit slowly, many homeowners are looking to get out of depressed or damaged homes they cannot afford to renovate on their own. This is creating many opportunities for residential hard money lenders and real estate investors alike.
Who Are These Residential Hard Money Lenders?
Residential hard money lenders are private lenders who finance either the purchase of residential properties, the renovation of fix and flip properties, or both. Unlike traditional lenders, such as banking institutions, credit unions, and savings and loans, hard money lenders are not as concerned with the creditworthiness of the borrower.
Traditional lenders look at credit scores, debt-to-income ratios and can take weeks or even months to approve a loan. Many home loan guarantors like VA and FHA will not consider investment properties, or they place restrictions on the loans and/or the condition of the property.
Once the property meets their requirements, the homebuyer qualifies for a long-term mortgage, assuming they meet the creditworthiness requirements. In many cases, this creates another opportunity for residential hard money lenders to step in and lend the money for the renovations these home loan sponsors require.
How Do Residential Hard Money Lenders Make Money?
Residential hard money lenders lend investors up to 70 percent of the after-repair value (ARV) of distressed properties in the Houston area. They usually charge 10-15 percent interest on the money, but their loans are short-term, six to nine months, so the investor has time to remodel and resell without early repayment penalties or the large interest amount of a traditional mortgage over 30 years.
These private lenders also make money charging small loan origination and processing fees, which investors don’t mind paying because they are getting the money they need to make money. These fees, in most cases, are considered a part of doing business and could be tax-deductible business expenses.
NOTE: Always check with a tax lawyer before assuming any expense is tax-deductible.
Where to Find Opportunities for Residential Hard Money Lenders
Red Door Funding works with many established contractors, investors and mortgage partners in the Houston area. If you would like to put your money to work for you, give us a call at (832) 539-1099. Send us an email with your questions,dwilliams@reddoorfunding.com.
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