You and your partner have been searching Houston, TX, for a perfect fit investment property and you believe you have found one. The only problem is the bank says it is not in “living condition,” so they will not lend you the money you need to make it livable. Therefore, you will now need to look for a loan from another type of business. Hard money lenders look at the overall value of the completed project to determine the amount they will lend you and the terms of the loan.
A Different Type of Financial Business: Hard Money Lender
The exact terms will vary and are usually negotiable; whereas, a banking institution’s terms are anchored in concrete and will take an “act of Congress” to change anything in their contract terms. However, when you borrow money from this type of business, hard money lenders, you can almost always get more money than from a banking institution. Unlike a bank that doesn’t want to lend money for a property that needs remodeling, their loan amount is based on the current condition and value of the property. In the business, hard money lenders will quite often lend you up to 100 percent of the appraised value of the completed project.
Credit Score Versus Hard Asset Value
When you borrow money from a banking institution you will need to prequalify based on your credit score. Hard money lenders lend money based on the hard asset value of the property you are buying to remodel and take a lien on the property until the note is repaid. For most people, it is much easier to qualify and the length of the loan agreement is short. After all, you won’t need 30 years to renovate and resell the property.
Many people think the interest rates charged through this business, hard money lenders, is too high. With a bank loan you would be paying four to seven percent to borrow $250,000 and then paying back approximately $340,000 over 30 years; after first making a 20 percent down payment, or $50,000. With a loan from a hard money lender, you may pay 10-15 percent interest, but for only 6 months or whatever time period you will need the money. That same $250,000 loan will only cost $12,500 at 10 percent for six months; however, there are other expenses and most real estate investors will not need nearly that much for a depressed property. The best part is nearly 100 percent of that can be written off as part of the business expense for tax purposes, though you should check with a tax lawyer for specifics.
Who Would Use a Loan from this type of Business, Hard Money Lenders?
These hard money loans are almost exclusively used by real estate investors that plan to fix and flip the property; however, anyone could use this type of loan to refurbish a property to the maximum loan amount from a banking institution for a long-term mortgage after renovation.
Why Red Door Funding?
Red Door Funding at (832) 539-1099 will calculate the value of the property upon renovation with an appraiser and lend you as much as you need up to the appraised value after renovation regardless of your credit score.
Red Door’s business is that of hard money lending mainly for “fix and flip” projects. Contact the Red Door Funding professionals to get the money you need, today. Just complete the credit application here. Send an email with your questions, dwilliams@reddoorfunding.com.