Hard money loans and bank loans are the most common financing when it comes to real estate. But, what is the best loan for fix and flip projects?
Depending on how many properties you are working with at a particular time will navigate what type of financing is necessary.
Initially, new investors go to banks for financing. Typically, they don’t look toward hard money or private money. If you are going to do this you will need to look for local portfolio lenders. These are local banks that lend their own money. These are not big banks such as Wells Fargo and Bank of America that will approve and lend on a mortgage, but later on will sell these mortgages. These are smaller, local banks that will keep the mortgage in-house. The benefits of these loans are the low interest rate. These rates run between 4% to 6.5% at any given time.
However, there are major drawbacks to these small bank loans. Initially, you will be required to put more money down. Typically, an investor will be looking at upwards of 25% down. That’s a big chunk of change. That 25% does not include all the fees that will have to be paid, as well—that is additional money required. To add on to that, the investor is left to pay for all repairs to the house. These types of loans do not cover rehabbing.
So, if the house is $100,000—the investor puts down $25,000. Let’s say the repairs are $20,000—that’s $20,000 the investor has to come up with out of their pocket. So far, that is $45,000 that an investor will have to pay on a $100,000 house. That just doesn’t make sense.
WHERE ELSE CAN I GO TO GET A LOAN?
Arizona Hard Money Lenders are an avenue that investors can choose to borrow from. This option works great for many investors. The rates from a hard money lender will definitely be more than that of a bank. Rates can run anywhere from 7.99%-15%. The great thing about Arizona Hard Money Lenders is they will lend you more money. It is common to hear of a hard money lender financing 90% of the purchase price. On that same $100,000 house that the bank only lent $75,000—a hard money lender will lend $90,000. On top of that, a hard money lender will finance the repairs on the property, unlike a bank loan. Many lenders will lend 100% of the repair costs. How that works is you get what is called “draws,” As you make the repairs, inspectors will come out—the hard money lender will study the report and then authorize the cost of the repair. Arizona Hard Money Lenders will lend on more than one property at a time. Also, Arizona Hard Money Lenders want to know they can trust an investor. Once they see a relationship forming, interest rates and points usually become more manageable.
Traditional mortgages can be a great tool for financing, however when it comes to properties that will be quickly rehabbed and sold using a bank loan just doesn’t make financial sense.
To find a hard money lender in your geographic area simply conduct a Google search and allow Google to know your location.
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.