Hard Money Lenders Explained - How To Properly Find & Utilize Them

what's going on everybody welcome to the ryan pineda show obviously i'm your host ryan and this is my show where we talk about all things business real estate and entrepreneurship and today we've got a fun topic which is hard money lenders [Music] so a lot of questions i get on instagram and tick tock are about hard money lenders a lot of people don't even understand what they are they don't understand where to get them where to find them they don't understand what they cost and then there are the people who think i would never use a hard money lender they're too expensive so let's take a step back and talk about what exactly are hard money lenders so hard money lenders are very different than your traditional big bank so for any of you who have ever gotten a loan from a big bank then you know that it is very difficult they want you to have two years of tax returns at the same job you got to have a certain down payment you got to fill out a ton of paperwork you have to get the appraisal and it typically takes 30 to 45 days to close the benefit of it is you get a 30-year loan at a very low interest rate so when you're talking to most people about mortgages that's probably what they're referring to is just the big bang traditional 30-year loan some people get a 15-year loan and that's it now when you're flipping houses the big bank doesn't work and there's a lot of reasons for that one is it's too slow most sellers who are in distress need to sell right now and that's why they're giving you a good deal they don't want to give you a good deal and wait 45 days to close if they're giving you a good deal they can just go sell that same deal to someone with cash and close next week so that's typically an issue another issue would be the house is not in livable condition we're buying these houses to flip because a lot of them are in very bad condition and so by the time a bank goes to appraise the home they are not going to give you the loan because it is in bad condition there are some loans that they give where they don't care about the condition but it typically comes with a very high down payment if you're using one of these low down payment loans like fha or va it must be in livable condition and that makes it almost impossible to get a good fixer-upper the third reason why the big bank won't work is typically you can't do multiple loans a lot of people will only qualify for their one loan due to their debt to income ratio that's all they can afford and if you want to be a great house flipper who's doing a bunch of flips every year you're not gonna be able to afford to get all those loans they're not going to approve you they're going to say you own too many houses you've got too many things going on you've got too much debt we cannot approve this deal even if it's the best deal ever you could be getting a house for 50 off and they will not approve it because your debt to income ratio is too high so that's why big banks do not work for house flipping at least not in volume so where does that leave us there's got to be somebody who's willing to finance someone who has a really good deal and that's where the hard money lenders step in and that's what actually changed my career was when i first found out about these hard money lenders before when i was growing up as a realtor i only knew about the big banks and the 30-year loans i thought that was the only way you could buy a house it was either that or cash i didn't realize there are these lenders who are in between those who are ready to finance those deals because they are betting on the deal and that's the big difference with hard money lenders they're not necessarily betting on you they're betting on the property they know that if you have enough equity it is gonna be a safe bet for them because if they have to foreclose on you they know they have a ton of equity the other beauty of hard money is that they can close quick they do this for a living they don't need all the strict underwriting that the big banks need they're able to make their own decisions with their own money so a lot of these companies can fund a deal in 7 to 14 days which is exactly what the seller wants so that was the game changer for me when i realized that i didn't need the big banks and i also didn't need cash that i could go to these hard money lenders and they weren't gonna judge me based on my credit and my debt to income because mine wasn't good at the time but they were gonna judge me based on how good the deal was that was the game changer because i knew i could find good deals i just needed someone to fund them and so that's what i did my first 25 deals were with hard money lenders and i'll talk about how i found my first hard money lenders later in the video but one thing to know is that yes hard money lenders are great they can close quick they're going to evaluate it on the deal but it comes at a cost they are significantly more expensive than the big banks or cash they're going to charge much higher interest rates they're going to charge points and the loan term is typically going to be 6 to 12 months so you have to flip it and for them that is the only way they can justify lending money at looser terms than the big banks they got to be compensated for the added risk for me i was okay with that when i was analyzing deals i would factor in what was this cost going to be so let's talk about the cost of a hard money lender so with a typical bank there are people right now getting interest rates in the two percents the high twos and if you're not getting that you're at least in the threes you aren't getting anything close to that with hard money the typical hard money lender is going to charge you anywhere from 9 to 12 interest and it's gonna be interest only on top of that they're gonna charge you what are called points a point is one percent of the loan amount that's it i remember when i first got started and i didn't know the lingo people were saying yeah we'll charge you a couple of points and i'm sitting there thinking what are we talking about are we shooting hoops like where are these points coming from is someone gonna score a touchdown like i don't get it but then i actually realized what they meant and most hard money lenders at this point are gonna charge anywhere from one to four points so if you get a loan for a hundred thousand dollars figure right up front you're gonna pay 1 000 to 4 000 as a fee and then on top of that you have a monthly payment of 9 to 12 so on that same 100 000 loan you're gonna pay anywhere from 750 to a thousand dollars per month so it's a lot of money let's just say you pay three points and 12 and it takes you six months to sell the property you would have paid six thousand dollars in interest and you would have paid three thousand dollars up front for a total of nine thousand dollars on the loan it ain't cheap and that's part of the reason why a lot of people hate hard money because it is so expensive and it makes deals not pencil out but i always took the opposite approach when i first started out i got terrible terms i was paying four points and 12 i don't pay anywhere close to that now but that was the only way i could get into a deal and i knew as long as i factored in those costs into the flip and the flip still made me what i wanted it to make me what do i care if that's the only way i can get in the deal and i'm still gonna go make my 20 25 000 even after paying these guys what do i care that it's expensive money i've always said i'd rather go pay for expensive money or go do a jv profit split than not do a deal at all 50 of something is better than 100 of nothing you guys have heard that term before many times so just get over the fact that hard money is expensive because if it's your only way to get into a deal then you have to do it and i still use hard money to this day like i said i have significantly cheaper terms now most of my hard money lenders are around eight percent a lot of them don't even charge me points anymore some will charge me one point so it makes doing deals much easier for me at this point but that's only because i have a reputation now i've got an experience behind me so they're willing to give me better terms and it also is because i'm doing volume so they know that yeah they may not make a lot on one deal but if they go get my next 10 deals they're going to make good money so just know as you progress in your real estate flipping journey you can get better terms even if your terms suck off the bat actually your terms will suck off the bat that's just the reality you gotta earn your stripes in this business you gotta pay to play whether it's with the hard money lenders whether it's for paying for a mentor whether it's with jving with someone get your feet wet do whatever it takes so i assume you're okay paying the expensive rates for hard money as long as it gets you into a deal so the next thing is where do you find these hard money lenders and honestly the easiest way is google a lot of them are advertising on google ads and all you need to do is just search hard money loans and you're gonna get a bunch of guys pop up now there are two different types of hard money lenders there is a national one and then there's local national is gonna give you a better deal typically than local they've got way more money so they can lend it out at cheaper terms and actually i'll make your guys lives easy i'll give you the top three nationwide ones that i recommend number one is lending home number two is anchor loans number three is civic i've personally used all three of those companies and i think they're great they have different types of loan products they have good rates good terms for not only experienced people but inexperienced people as well so go check those three companies out but as i said you can google and find other companies as well the other route i just mentioned are the local hard money lenders so what you would want to do is google hard money lenders and then put your city las vegas las vegas hard money lenders and a bunch of local companies should pop up now here's the deal with local typically they are going to be more expensive but they're going to be more flexible the nationwide lenders are more strict with their paperwork and what they do so the local guys know their market better so they're going to be able to give you more flexible terms now we've only talked about the interest rate and points with hard money lenders but there are other things to consider a term to look at is called loan to value ratio that's ltv essentially they're willing to lend anywhere from seventy to eighty percent of the loan to value ratio so at seventy percent let's just say that the value is going to be a hundred thousand dollars when you're done with it they're only willing to give you a seventy thousand dollar loan max that's with purchase price and rehab that just guarantees that they're going to have enough equity in the deal for you to be safe the other part to look at is down payment so let's just use that same scenario and say that you've got this property you're buying for 50 000 you're going to put 20 000 into it and it's worth 100 000 when you're done so you've got 70 ltv but they also require 20 down payment so on that 70 000 that you need for the property between purchase price and rehab they're gonna want you to put 20 down so you'll need to come up with 14 000 so when it's all said and done you would take the 70 000 minus 14 000 and that gives you 56 000 that's going to be your loan amount from the hard money lender and that's what they're gonna charge you points and interest on and that's really it when it comes to hard money loans you're gonna be looking at interest rate points ltv down payment and then how long the term is is it six months twelve months whatever it may be they are going to be more expensive but they are totally worth it as long as you are getting a good deal just make sure that you factor it into your cost when you're evaluating your deals and if you want to learn how to evaluate deals i actually did a video on this you could find it right here and that should help you out understanding your cost so i hope you guys enjoyed this video i hope that cleared up some questions you had about hard money lenders if you liked this video and you got value make sure you hit the like button if you want more content just like this make sure you go and subscribe and hit the bell notification so that you're notified when any of my new videos come out and lastly if you want daily content from me make sure you go follow me on instagram and tick tock i'm active on there every single day showing behind the scenes you guys are gonna love it i appreciate you watching this video take care hey guys thanks for watching this video and thank you for supporting this channel if you want to get into real estate investing and you don't know where to begin i want you to go to futureflipper.com you can find it in the link below over there we have a ton of different resources and products no matter what your skill level is no matter what your budget is we can definitely help you out and point you in the right direction we've got a ton of free resources for you guys you can download my contracts for free you can get my book for free you can go to our facebook group for free the opportunities are endless if you're really ready to take it to the next level you can buy my online course or you can even be coached directly by me i love working with all my students and helping them get to the next level if you're not sure what to do just go to futureflipper.com and apply now my membership director will get in touch with you and figure out what's the best program for you whether it's free or not everyone's at a different spot in their life so even if it's a free product we're gonna tell you what we think is best for you right now so 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Channel: Ryan Pineda

Views: 43,059

Keywords: real estate, house flipper, financial freedom, future flipper, house flipping, rental properties, real estate investor, real estate investing, wholesaling real estate, ryan pineda, graham stephan, meet kevin, bigger pockets, grant cardone, hard money lenders, hard money loans, hard money loans five things you must know, hard money lenders bigger pockets, house flipping loans, real estate loans, real estate loans explained, lending home, lending home review, anchor loans

Id: GICDUPAFtVo

Length: 11min 49sec (709 seconds)

Published: Wed Jul 22 2020