A Property Flipper’s Secret to Success: Hard Money Loans
As a successful real estate investor and property flipper, one of the questions people ask me the most is, “Where do you get the money to start flipping houses?”
I’m going to let you in on one of the biggest secrets to my success – I don’t use my money at all. I use other people’s money. Isn’t that intriguing? I use a hard money lender, and they’ve set me up for professional triumph. You can achieve this financial victory, too!
Traditional lending focuses on different numbers than what property flippers do. Traditional lending focuses on the value of the property at time of the purchase. Property flippers, successful ones, point on the numbers in the ARV, the After Repair Value. This value is everything and can be determined by a local real estate broker.
Traditional bank lending methods will not touch properties in need of big repairs. A hard money lender will base their loan off of a percentage of the estimated ARV. Most banks rely on the borrower’s credit, but a hard money lender will base their loan on the value of the potential property investment.
Hard money lenders can also give you quicker loan quotes and provide the financing faster than a bank will. When you’re in competition for a hot property, time is of the essence and using a hard money lender will be a huge advantage. Third party approvals are rarely needed, so paperwork is cut in half.
A hard money lender opens up communication among investors. A relationship develops over the investment and rules aren’t as rigid as the project develops. There isn’t a limit to maximum exposure from one buyer because the lender and the borrower have developed a partnership. Hard money lenders will often work with the borrower to overcome any unforeseen obstacles.
Hard money lenders also don’t care about a bad credit score. Sadly, in the property flipping business, failure does happen. If there is a blot on your credit because of a bad investment, the hard money lender is able to overlook this because the loan is based more on collateral than personal finance history.
So when all is said and done, every successful property flipper has a few tricks up their sleeves to make their investments work. For me, the biggest help has been a hard money lender.