Hard Money Lenders Help in Rehabbing Houses

It may be hard to believe but it is true: hard money lenders help in rehabbing rehabbing houseshouses. Many will argue that these lenders merely prey on real estate investors who are desperate for financing. Little do these people know that these lenders are behind many rehabbing projects that bring new homes to people and more profits to investors.

Hard money lenders help in rehabbing houses by allowing investors to buy and fix and flip a house with zero personal money. Here’s how this amazing system works:

For example, you are a rehabber and you found a house that is selling for $50,000. The fixer upper home needs around $10,000 in repairs to bring it to a good condition. You will need another $10,000 for closing costs and other expenses, including possible loan interest. That means you will need $70,000 to buy a house, repair it, and then sell it. That’s your total expenses.

Let’s say that the value of the property in good condition is $100,000. This value, also known as the after repair value (ARV), is where hard money lenders will base the amount they will lend you. Although rates vary across the country, the most usual percentages you’ll find are between 60% and 70%. If the lender agrees to lend you 70% of the ARV, that means you will get a $70,000 loan. That also means that you will be able to buy a house, repair it, and then sell it using hard money financing alone.

Simple logic will also tell us that you will earn $30,000 from a rehabbing project without having to spend a single dollar from your personal bank account. If you need to pay these lenders $5,000 or $6,000 as interest but will earn $30,000, will you still feel that you were taken advantage of?

Unlike hard money lenders, traditional lenders won’t give you $70,000 in this case. The highest amount you will get from is around $50,000 or the amount needed to buy a house in its current condition. If you tap traditional lenders, you will need to source another $20,000 from other sources just to proceed with a project. When you’re a rehabber, you just don’t have the time for that hassle. It will also be harder to secure loans from other banks if they knew that you have an outstanding loan with another lender.

Hard money lenders earn a lot but real estate investors earn much more. Now, does it make sense to tap this line of credit? Know more about it at today.

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