Real estate investing has been a hot-button topic in recent years, as we have seen the industry turned inside out with volatility, the collapse of the housing market, and, of course, the tightening of capital purse strings by the banking sector. However, for hard money investors and borrowers, opportunity abounds in these turbulent times, as the ability to capitalize on distressed properties opens the door to opportunities for profit.
It is worth noting that not all distressed properties pose the same profit opportunity, which is why we’ve created this guide in an effort to better educate about what to look for, how to secure funding, and most importantly, how to generate a healthy return on the transaction.
A property is “distressed” when it is being listed by the financial institution or is currently under an order for sale due to foreclosure. In these instances, the property is usually “priced to move”, as the bank has little or no interest in keeping onto the property any longer than necessary.
Unfortunately, the same dynamic that leads to these opportunities also makes it very difficult to find the financing to obtain and purchase the property, putting real estate investors in a dilemma. With banks refusing to offer up capital, how can they expect these properties to move? This funding gap has created a growing hard money lending industry that has taken the industry by storm.
Hard Money Lending Basics
Hard money lending offers those who have capital a wonderful investment opportunity, while providing those without capital the opportunity to turn healthy profits in distressed properties. There are several different perspectives on the hard money industry, so let’s talk down a few key components to help you determine whether or not investing in such endeavors is right for you:
(1) Valuation and the Loan – LTV
Hard money loans are contingent on the after repair appraisal of the property. Because the lending institution will only offer around 60% of the total after repair valuation, a borrower will want to be certain that the appraisal is accurate. This hedges the lender’s bet on the high-risk nature of the loan, as the property is then placed as collateral against the loan itself. Should the borrower default, the property is then turned over to the lender as repayment.
(2) Protecting Yourself as the Borrower
Those interested in acquiring and “flipping” locations using hard money should be well-informed in the various nuances associated with the property’s value and the conditions of the loan. One must be certain that they have the property appraised the amount of WORK necessary to restore the property, if necessary, as these types of “surprises” can often lead to a financial nightmare. Fortunately, however, the lender doesn’t want the property either, so they will probably be quite diligent in making sure that your proposal for profit is a sound investment – it just never hurts to get another opinion on the work required!
(3) Convenience vs. Interest Rates
Distressed properties provide great opportunities, as we previously mentioned, but in order to capitalize, time is of the essence. One of the biggest necessities is the ability to secure funding quickly. Hard money lenders will usually have the ability to set up an appraisal and provide funding in a matter of days, whereas standard banks can take weeks! This, alone, can ensure that your eye for property, potential isn’t thwarted by another investor that has deep pockets…
There is a price to pay for this convenience, however – hard money loans often carry higher interest rates than the standard bank alternatives. This should come as no surprise, as the risk is far greater for a hard money lender, given the propensity for “speedy” approvals.
Distressed = Discounted!
Distressed properties often come at a steep discount, as the lenders are simply trying to unload them and recoup their initial investment. Those that understand how hard money lenders can assist in securing quick capital can take advantage of newly found opportunities, improving the ever-important bottom line.
Today’s real estate climate may have warmed a little, but don’t buy into the notion that things have recovered. Banks are still sitting on countless properties, and are actively seeking investors to take them off of their hands. Those profits could be yours – you just need to understand the hard money sector!
At Hard Money Atlanta we are quickly becoming Atlanta’s go-to private real estate lending company when you need to get the deal done! We provide private, hard money loans to professional real estate investors. Our focus is funding non-owner occupied property for residential investors or commercial property owners. We also now are dealing with owner occupied properties as well!
Feel free to contact one of our team members today to discuss your loan scenarios, general questions and funding needs at 813-397-8291 or email firstname.lastname@example.org or apply online for a hard money loan today.
Start flipping homes for a profit in the Atlanta area today.
*Our lending highlights include: Hard Money Loans, Rehab Lending, ARV Lending, Private Lending, Equity Lending, No Doc Lending, Asset Based Lending, Cash-out loans and Commercial Bridge Lending.