Top Reasons Why Hard Money Loans Are Rejected

Buying a House

Hard money loans in Texas are considered to be one of the easiest kinds of loans to get. They are preferred among real estate investors because the application procedure doesn’t include things like income history or credit worthiness. Instead, lenders are more interested in the property’s value. That being the case, there are times when this type of loan might be denied. If you’re a real estate investor, keep reading to learn why your loan application could be denied.

Equity Concerns

Most hard money loans in Texas are not for the full amount of the property. Lenders aren’t keen on financing the entire purchase. These loans are only meant to help out with some of the investment costs. Investors often run into problems getting approval for this transaction when there isn’t enough equity in the property to borrow against. Most lenders want at least 25% equity to consider a loan application. If the property doesn’t have this much equity, then you’ll need to come up with a larger down payment to offset the difference.

Lack of an Exit Strategy

Private money lenders want to know your exit strategy. If you don’t have one, forget about nailing down hard money loans in Houston. Why is this strategy so important to lenders? Unlike conventional home loans, hard money lending products are designed to be short-term. Since these products are for the investor, they rarely offer loans beyond 1-3 years. At the end of the term, the remaining balance is due, which in many cases means a hefty payment. Lenders don’t want to be on the hook for 5 or 6-figure balances. Therefore, hard money lenders want to know what you’re going to do if you can’t pay off the balance at the end of the term.

Examples of common real estate investor exit strategies include the following:

  • Refinancing either with a new hard money loan or a conventional loan
  • Selling the property
  • Selling another property and using the proceeds to pay off the balance

Not Enough Money to Make Monthly Payments

While it’s true that credit scores, past foreclosures, and income history don’t matter as much when applying for hard money loans in Houston, TX, you still have to prove you can afford to make monthly payments. If your income falls short, lenders see this as indicator that you might not pay back the money. You can prevent a denial because of income shortfalls by proving with income statements and/or bank statements that you have the money to follow through with your financial obligation. Investors that don’t have substantial cash reserves often team up with more financially stable partners to avoid being denied.

Signing a Form

Are you ready to apply for one of these loans? Houston, TX, hard money loans are easier to obtain than going to your local bank branch for a conventional home loan. However, before you seek out one of these loans, make sure the investment property has enough equity and that you can make the monthly payments. Many investors find that future loans are even easier to get when they establish a relationship with their lender. Therefore, find a hard money lender whose terms you like and work to establish a relationship for future investments.

For great terms on hard money lending products, contact Investor Loan Source today!

All You Should Know about Real Estate Financing

Sign

Buying your first investment property is exciting and also filled with many decisions. One of the first decisions you must make is choosing real estate financing. When you purchase an investment property, you probably have questions about the best types of investor loans in Texas. There’s a lot to consider but take a moment and keep reading to get a better understanding of real estate loans for investment properties.

Do Your Research

There are a lot of loan products on the market. Some are great, and others aren’t worth much. The last thing you want to do is rush into making a decision. Research all the investor loans in Houston, TX, and know what you’re looking for. Are you planning to use the investment property as a rental or will you be flipping the property? If you’re planning to flip the property, be careful with high-risk loans that start off with a small APR rate and increase after a few months. Although you have plans to sell the property quickly, keep in mind that the market doesn’t always support a quick sale.  

There are several types of Texas investor real estate loans designed specifically for house flippers. These loans are often tiered products based on credit-worthiness and offer 6-12-month loan terms with no down payment required. You can also find loans available for 20-year terms with low interest rates for one-to-four-family unit housing. Whatever type of investment property you’re interested in, there’s a loan for you as long as you do your research.

Get Preapproved

Preapproval isn’t just for buyers who plan to live happily ever after in their dream home. Getting preapproved for a loan is a smart idea for every type of buyer. Not only does this let you know how much you can actually afford, but it makes your offer as strong as possible.

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Don’t Spend to the Top of Your Budget

With your first investment property, it’s important to keep your costs as low as possible. This means not spending your full budget on a property. There are plenty of Houston, TX, investor real estate loans for all price points. Staying toward the lower end of your budget—not just in terms of price but loan terms too—keeps you in the safe zone. It makes investing in real estate as stress-free as possible and sets you up to build your portfolio.

Work with Loan Companies Geared toward Real Estate Investors

A mistake that many first-time property investors make is that they choose to work with a lender that doesn’t understand your unique needs. Many traditional loan products place restrictions on their products that make it difficult to make money off your purchase. For example, if you’re planning to flip a house, a traditional FHA loan that requires you to live in the home for a certain number of years isn’t going to work for you. When you work directly with real estate investor lenders, you have access to loans that make sense for your goals.  

As a first-time real estate investor, the best decision you can make is working with a company that understands the value of investor real estate loans in Texas. If you’re looking for affordable investment loans, contact Investor Loan Source and tell them about your project for guidance and great loan programs.

Signs of a Good Hard Money Lender

Loan

When credit history is an issue with getting a traditional loan, one option is to work with a hard money lender. Hard money loans in Texas are readily available, but you want to make sure the organization you deal with is legitimate. How can you tell? Use these three criteria to make sure the group you’re working with is trustworthy and will provide for you the service you deserve.

They Check Your Credit

A big selling point for hard money lenders in Houston, TX, is that they don’t get hung up on credit reports. As long as you have a valid and stable source of collateral (hard assets like real estate), you’ll generally be able to qualify with hard money loan lenders. But that doesn’t mean they shouldn’t check your credit. You want them to at least look into your background. Every hard money loan lender you talk with should conduct a background credit check, even if the credit rating doesn’t matter or your history of repayment won’t factor into their decision.

They should make an effort to discuss how you will repay them and establish repayment guidelines for you. If they don’t check your credit or don’t seem interested at all, you may want to look at alternatives. A red flag they’re more concerned with moving money than with getting repaid is that they pay no attention to your history and if that’s the case, you should be concerned.

Their History

The key here isn’t how long they have been in business, but their loan volume. While a hard money lender that has been in business for a while is a good sign, if they haven’t distributed many loans, it might be a red flag that they’re stricter than your average hard money loan company. It also could be an indicator that their ability to secure investment capital is limited.

What you want is a company that has a steady history of approving hard money loans, and if possible, you want them to have many repeat customers. Repeat customers mean that they’re well regarded enough to gain repeat business. Another indicator they’re reputable is if their stable customers include known and well-regarded construction companies, developers, or real estate brokers. This is an indicator that they’re able to turn loans reasonably quickly and reliably. Securing a short-term hard money loan is often the difference between closing a deal or finishing a project. That’s why it’s crucial for hard money loan lenders to have reputable and consistent customers.

Cash

Multiple References

The only thing that serves as a good reference better than repeat business is customers who go on record supporting you. The hard money lender you work with should have a stable slate of customers who will vouch for the lender. If they have a high volume of repeat business, you can rest assured they’re well regarded.

Hard money loans can be a lifesaver if you can’t get a traditional loan. Making sure your lender is reputable is critical, and these three criteria will help you do that. For more information on hard money loans, check out Investor Loan Source.

Top Hard Money Loan Facts Every Borrower Should Know

Hard money loans can be a financial instrument that saves the day for those who need fast cash or have problems with credit history. There are, however, rules to using hard money loans that will save the borrower time and money as well. Here are a few of those rules every applicant of hard money loans in Houston should know going in.

Writing a Check

It Is Just a Loan

The term “hard money loan” sounds scary, like something you would wager at the end of a long night of losing at poker. In reality, a hard money loan in Houston, Texas, is a short-term loan that is secured by tangible assets, usually real estate.

Additionally, the lenders of hard money loans are not shady or threatening as some may think. They’re usually a private investor or investors who are willing to lend their own money for a small profit, as long as the borrower can put up the collateral to guarantee their initial investment. It’s important to remember, however, that the loan is meant to be short-term. Financially, it makes no sense if you are looking at hard money loans to extend it any longer than you have to because of the higher interest rate.

Getting One Is Easier and Less of a Hassle

To get the best hard money loans, you have to prove you own property that is worth the amount or more of the money you are borrowing, plus interest. That means the lender will not spend a lot of time on your credit history, current finances, outstanding debt, etc. They’re interested in making sure you can give them real estate or some other hard asset if for some reason you cannot pay off the loan.

Because of that, it takes a lot less time on average. Whereas a banking loan might take weeks, a hard money loan process takes a few days to a week. That means you can get access to the funds you need in a much shorter period of time.

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Hard Money Loans Are Not for Everyone

For some, hard money loans are nothing short of a miracle. They provide access to funds in a quicker time frame than normal or to people who otherwise would not qualify for a traditional loan. They are not, however, the perfect lending tool (which is why they are not the predominant method of lending money.)

If you’re looking for a long-term loan with low-interest payments, a hard money loan is not for you. The same is true if you’re using your real estate or hard assets to secure other loans or investments. If you can afford to part with a large chunk of change up front in any real estate transaction or construction project, a traditional loan might be the better, and less expensive, option. Finally, if parting with the collateral you put up is more than you could stomach if your fortunes turn south, a hard money loan is probably not right for you.

Hard money loans can be an effective bridge to help you get through a cash flow issue when traditional loans are not an option. For more information, check out the Investor Loan Source.

A Brief Introduction to Hard Money Loans

Cash

Not everyone has perfect credit or can wait potentially weeks to get approved for a conventional loan. Borrowers who can’t get a conventional real estate investment loan in Houston, TX, can get a hard money loan. For people who don’t qualify or have to jump through too many hoops to get loans in the timeframe that they need them, hard money loans are perfect as long as you have the collateral to secure the amount you borrow. Here’s how it works.

Asset Based Collateral

What is a hard money loan? It’s a short-term loan secured by real estate. Every lender will require you to put something of value behind your loan should you default. In the case of a hard money loan, you secure your loan with some tangible asset, usually real estate, that will serve as collateral should you not be able to honor the terms of the loan. While real estate is the preferred collateral, you should present to a hard money lender any asset you have that holds tangible value on the market.

Quicker Access to Cash

Hard money lenders are more interested in the property’s value rather than your credit history. This is because the higher your property value is, the more money they will lend you. Because the process is simpler and shorter in terms of approval, the turnaround is naturally quicker as well.

Conventional loans can take weeks as your credit history is being scrutinized and banking officers are deciding if they think you’re worth the risk. A hard money loan, upon verification that you own the property you’re placing as collateral, can be distributed in days. Some lending organizations even offer expedited decision making and delivery options if you’re in a real rush to get your money.

Higher Interest Charges

One downside to hard money loans is that the interest is higher than conventional loans. Typically, hard money loans rates start around 8% and can get as high as 18%. The interest rate is higher because you’re paying a higher premium for quicker access and less stringent assessments. Because money lenders take on more risk with their loans compared to conventional bank loans the interest rates are higher.

House and Money

Short Term Repayment Periods

If you’re unable to wait for a long approval process for your real investment needs, hard money loans are an option. One thing to keep in mind is hard money loans have a shorter repayment period. They’re typically short-term, lasting a few months rather than years. You must present a repayment plan that shows how you plan on repaying the loan in full. If you’re taking out a hard money loan, have a hard asset you can put up for collateral and be able to pay the loan off to minimize your overall expense.

If you need to buy a property quickly because you’re afraid it’ll sell fast and can’t wait for a long approval process, or need quick cash for a fix and flip, consider hard money loans. For more information on lending alternatives, including real estate investment loans in Houston, TX, and other hard money lending options, check out Loan Source, LLC.

The Checklist to Follow before Getting a Hard Money Loan

checklist

Hard money loans are a type of loan that buyers receive from private investors or companies that are looking to invest in sure things. That makes hard money loans a little tricky to get, but they are an excellent way to ensure a fast closing.

If you are interested in attempting to gain a hard money loan for your next property purchase, make sure you have these four things checked off before you contact an investor like Loan Source LLC for a commercial real estate investment loan in Houston, TX.

Property Analysis

Private investors and companies that are looking to lend hard money loans want to make sure that their investment is going to pay off. That means that you should do a property analysis and write a report for your lender. Make sure the investment property is located in a good neighborhood or an up-and-coming neighborhood. Print out articles about the neighborhood to show proof that it is a good investment. Remember, your lender wants to put in a safe investment, and you have to make sure you show them that the property is worth the risk. In addition to location, you should include photos of the property and any public records about the area, including water sourcing and recent transaction histories.

Repayment Plan

Remember that hard money loans are based on the quality of the investment, and your lender is investing in you. Therefore, before you step in the door, be sure you’ll be able to answer the question: “How are you going to pay us back?” This will show the lender that you’re prepared for the question and that you are confident in your payment methods. Having a solid repayment plan is a solid step toward loan approval for a hard money loan.

Income Documentation

As a part of your repayment plan, you may have to provide proof of funds or a business plan if you are thinking about using the property as an investment for yourself as well. This will show the lender that you’re prepared to pay back the loan in full based on the amount of income you make in a month. You may also find that it’s important to include references in this situation. This is especially true if you have been with a company for less than six months or a year. These references will show your lender how secure your employment situation is and give them proof that this is a secure investment.

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Business Plan, If Necessary

Remember, if you are planning to use this property to help you start your business—i.e. if it is a management or investment property for you—you should include a business plan to show your lender your plan to pay them back. This is a great way to ensure you have a solid investment for your lender, and that it is safe.

If you are interested in getting a hard money loan, contact Loan Source LLC. They are an investment company that specializes in commercial real estate investor loans in Houston, TX. Visit https://ils.cash today to get started.

Tom Berry’s Tips for 2019 Part3

Tip #4

What Dictates your Business?

If you let the market dictate your business model for that year, you’re going to have a better chance at success! Why? When you choose a strategy, and create a business model around something the marketplace doesn’t need – you are setting yourself up for failure.  You must choose a strategy that is conducive with the marketplace. Unfortunately, in real estate investing MANY people make the mistake of creating their business model around a strategy not needed in the marketplace. Here’s an example: Everyone wants to be a house flipper, and why is that? Because they saw it on TV. Maybe they thought it was sexy, or it looked fun, or “it gives me an opportunity to use my creative side”. Listen to me and listen carefully – those are poor poor poor ways of creating a business model. A business model should be determined by what the market is asking for never because it looks fun. When you look at a business model for yourself you’ve got to ask, “Where is the market?”, and “What does the market need?” That is using this rule of letting the market dictate your business model and it will save you time and money.

Tip #3

One Size Does NOT Fit All

Often, I hear “I am a wholesaler, that is all I do” or “I am a flipper, that is all I do”. Then a deal comes along with the potential for profit, but it doesn’t fit their desired strategy. Using only one investment strategy prevents them from making the deal work for them. They are now working for the deal. You can’t let your strategy get in the way of investing and call yourself an investor. The question is “Can we make money with this lead the way we like to make money?” In other words, does our desired investment strategy fit this deal? If it does, great. But if it doesn’t then you need to go to the next strategy that does work. This is making the deal work for you. When you are new to real estate investing you may only have one strategy available, and that’s okay. Start planning ahead even in the beginning, it is crucial to your success to be looking into the next strategy. After mastering your desired strategy, add another, and another and keep adding to your tool belt until you never have to walk away from a deal. Your ultimate goal is to get to the point where you can make money with any deal using any strategy. Get out of the mindset that “One size fits all” because that is just not the case in real estate.

Tip #2

Start with the End in Mind

No spoiler alerts here – it’s important to keep the end in mind. Know what your company should look like ultimately. Keep your end goal in mind when you start and while you’re building towards it. I often ask fellow investors, “What is your end goal?” I am always surprised by how many cannot answer such a simple question. Some of these folks have been in business for 5 or 10 years but they are still just doing transactions with the goal is to just make money now. That is a pathetic goal – it really is. It’s a lazy goal and a cop-out answer of what you want to do. This is your life, you should strive for making more than money. It’s important to start thinking about the ultimate lifestyle, your dream. “What is my ultimate lifestyle? What do I want my company to represent? Will it make me happy?” Then you need to start working toward what your company needs to look like to achieve these goals. To do this you’ll have to take a couple of things into account: The first one is (obviously) money and the second one is Freedom. Freedom of time is just as important as money. Once you have those two things figured out then – and only then – can you begin to visualize what your company needs to look like. Take my word for it, 12 years ago I created my business on a dream board and now live the lifestyle I choose. My wife and I also have and make the time needed to enjoy it. If I had just strived for a bigger paycheck each year, you wouldn’t really be interested in my advice. So, keep the end in mind whether you’re starting or growing your business.

Tip #1

Don’t be Afraid to take Action.

So many people are hesitant to do this because ‘they have to think about it’ or ‘they have to analyze it’, they think they have to know every variable before they can proceed in getting a contract. There should be no fear of taking the first step. The person who controls the contract controls the world. Start with at least getting the contract. Once this is done if you can’t close on it or if you decide that you are just too fearful to rehab it or keep it as a rental, you can always sell the contract! Wholesale it to someone else and take that extra money that you’ve made and put it into more marketing to get more contracts. The bottom line is, you must take action. You’re not going to know everything, you’re never going to know everything. After 12 years of real estate investing, I’m still learning. You will find out what you need to learn and study after you start. You can’t move forward without taking the first step.

Tom Berry’s Tips for 2019 Part2

Tip #7

Build Multiple Income Streams

Some of your income may come from real estate and some may not. If you start out like my wife and I did, full time, then all of your income will come from one place. For my wife and I, that income stream was Wholesaling. It was sufficient but I quickly knew I wanted to have multiple income streams for security. We began to hold a few of these properties as rentals and every once in a while we would fix and flip a property. This allowed us to start building multiple income streams. This gave us more stability and consistency which allowed us to do more projects. Today we have other businesses’ outside of real estate providing us additional income streams but it all starts with just the first one. Once you’ve mastered that first skill you can add another and in turn add another stream of income. Once a year my wife, Melissa, and I take a look at all of our income streams and eliminate the bottom one or two based on that year’s performance. We always eliminate the bottom tier of our income streams because I know the next year I’m going to expand and be faced with more opportunities. You will have to start eliminating areas that are not growing to move forward on the next project or the better performing income stream.

Tip #6

Delegate, Delegate, Delegate

Delegate and track everything in your company… except branding!

What I mean by that is we want to eliminate all the tasks that we, the owner, have to do in the company excluding the task of branding. I want to unload everything I can so I only need to focus and tackle the big tasks. Initially, you will say, “Well I am my company – I don’t have anyone else”. That’s fine for now but start thinking about the things you would eliminate if you had an employee, a virtual assistant, or someone else on your team. Start thinking about how much more productive you could be if you started delegating those tasks – particularly low paying tasks. Give yourself an hourly rate and say I’m going to eliminate everything I’m doing in my business that does not pay over “X” then fill in the blank. You may say “I can hire someone for less than $15 an hour to do this then I shouldn’t be doing it.” Eliminate or delegate the smaller more time-consuming tasks. Once you do delegate these tasks you want to track it. Make sure the work is still being done and most importantly, being done the way you want it to be done. Eliminate all the work that you can, if you can, because that will free you up to tackle bigger tasks and allow you to grow. Remember, there is no one man army.

Tip #5

Study Market Cycles

This tip is one of the LEAST talked about areas in real estate investing and probably one of the most important. All markets move up and down. You’ve probably seen this in stocks, gold, and silver pricing. Those same metrics exist for real estate in submarkets and of a particular asset class. Real estate can be defined by those two things, submarkets and assets classes. Let’s say you’re investing in a particular market and in a particular asset class, such as Houston and the submarket of Galveston, with your asset class being single family homes. You want to be a student of that market, you want to study the cycle of that market. One of the biggest misconceptions in real estate is that values only go UP and that is absolutely NOT true. Real estate goes up, down, and sideways for periods of time. A market cycle typically will last anywhere from 8 to 10 years. This can be from peak to peak, or valley to valley, depending on where you’re starting in the cycle. Understanding what the cycle is doing and expecting what’s coming next gives you a huge advantage over your competition. In the marketplace, most commodities are not predictable because they have what we call high volatility. It is very difficult to predict the direction of a stock, currency, or precious metal but it is NOT that hard to predict real estate. If you understand real estate, you understand that it moves very slowly. It’s not as volatile, it still moves up, down, and sideways, but it does it in a much slower fashion. Start studying the cycles of what you’re investing in and where you’re investing so that you know what’s coming and what to do next. Start online! You can find everything online now. Example: You’re investing in an apartment complex? Check your local MLS – look at the historical data then study the historical data through Costar, LoopNet, or Commercial Gateway. The internet is full of amazing resources to gauge the market cycle in the submarket and asset class of your choice. Start studying now!

Tom Berry’s Tips for 2019 Part1

Tip #10

Your Network will = Your Net Worth

“Your Network Will Equal your Net Worth.” This is a catchy saying we hear often at a lot of different real estate meetings. But so many don’t understand what it really means. People are the most important part of your business, not your marketing, not the contacts you have, not the money you have – it’s about the people in your network. If you build a strong enough network over time you will find tons of private money, new deals, partners, trades, realtors, pretty much everything that you need – even the people and resources you didn’t know you needed. Like crucial professionals such as your attorney or your accountant. In this business, it is really all about the people in your network. The sad and unfortunate truth is many of us miss that. So, believe me when I say, “Your Network Will Equal your Net Worth.” Growing a strong reliable network of people TODAY will provide you with more resources and growth opportunities TOMORROW. Start building your network today.

Tip #9

Stay Focused on ONE strategy until Mastered Before Moving to the Next

Stay focused on one strategy until you master it. Once you have mastered your desired strategy then consider learning and adding new strategies to your business plan. I often see many people get into real estate and start bouncing around from one strategy to another… and another… and another. They get into real estate with the idea that they’re going to wholesale. The next week they’re rehabbers and the week after that, they’re taking a class on how to buy non-performing notes. What they’re really doing is chasing the easiest way to make money… or trying to. The fact is, there is no easy way to make money. All successful real estate strategies work at one point or another depending on the market cycle. The real professionals in R.E. investing know what they want to do and what they are capable of. They immerse themselves in the education necessary to become a master at it. Bouncing from one shiny penny to another or one strategy to the next, just because you think it’s going to be easy, will keep you from mastering anything.

Tip #8

Systemize Everything

To systemize means to repeatedly do a task in the same way so that you can do it in the most efficient manner possible. When you systemize tasks for efficiency it allows you to accomplish more faster. It’s important to organize and create these systems so that you can easily train another to do the same. Setting up standard practices and repeating these tasks eliminates room for error and allows for more growth in your business. As your business grows, your employee numbers will too. Having in place practices and systems will allow for a smooth transition. If you don’t work towards systemization you will never own a business you’ll just own a job.