| There are tons of loans available for real-estate | | | | extra funds. Keep the extra money as additional |
| investors. One type of loan commonly used by | | | | reserve. |
| investors is the Hard Money loan. These loans allow | | | | 4. Process- The process of receiving money for |
| investors to buy and fix investment property. If used | | | | repairs is called a draw. After your contractor finishes |
| correctly it can definitely put money in your pocket | | | | a percentage of the work you will call your Hard |
| right away. But, be aware because there are some | | | | Money lender, and tell them that you are ready for an |
| pitfalls you will need to avoid in order to be successful. | | | | inspection. The lender will send an inspector out to |
| Below explains how a Hard Money works and what | | | | verify the work has been done and completed within |
| to look out for. | | | | code guidelines. Once the inspector gives the lender an |
| 1. Scope of Work- for these specific types of loans | | | | o.k., the lender will release the funds that equal to the |
| lenders will require the investor to provide a scope of | | | | amount stated for the cost of work. For example, if |
| work worksheet. Every repair you plan to make needs | | | | you listed carpet repair $1500, paint $1200, and new |
| to be written down on this sheet. The scope of work | | | | light fixtures $100; when the inspector checks all the |
| worksheet is what the Hard Money lender will use as | | | | items off: the lender will cut you a check for $2800. |
| a guide, in order to pay for the project. If repairs are | | | | Now you can understand why it is important to have |
| done that are not on the worksheet, then you may | | | | all repairs and cost listed on the worksheet. If the |
| have trouble getting reimbursed by the Hard Money | | | | repairs are not listed then they will not pay you. |
| lender. The lender will want to see everything written | | | | Normally the lender will give you 3 to 7 inspection |
| down to be sure everyone is on the same page. | | | | dates depending on how large the project is. Unless |
| Lenders will normally allow investors to change the | | | | you can convince the contractor to start working |
| scope of work in the middle of the project if able and | | | | without putting money down, you will have to put the |
| necessary. | | | | money up to get things started. Expect to get |
| 2.Requirements- Most Hard Money lenders now want | | | | reimbursed from the Hard Money lender through your |
| 20% down from the investor on all projects. The | | | | draw checks. |
| lender will also want to see reserve money sitting in a | | | | 5. Refinancing- This is the most important part in |
| bank somewhere. The investor's monthly income will | | | | rehabbing property using a Hard Money lender. Hard |
| play a big role with the lender in approving the loan. | | | | Money loans are short term loans with high interest |
| Credit score is a factor, but they do not require a | | | | rates. These interest only loans will have an interest |
| stellar score to be approved for a loan. The last Hard | | | | rate of somewhere around 15%. That may seem high, |
| Money lender I used did not even pull my FICA score, | | | | but these types of lenders understand how important it |
| they just wanted to see a copy of my credit | | | | is to make their money and get out. We need these |
| report-which I was able to order for free. There will be | | | | companies in order to rehab properties if we cannot |
| requirements for loan to value, but each lender will | | | | fund our own projects. Hard Money lenders realize the |
| have their own set of guidelines. | | | | risk they are taking, so lenders ask themselves |
| 3. Over estimating repairs- Repairs on an investment | | | | "WIIFM" (What's in it for me). They compensated with |
| property is always just an estimate. When rehabbing | | | | a high interest rate for the risk they take. Hard Money |
| property nothing ever goes as planned. Over-estimate | | | | lenders expect you to either sale the property quick |
| the repair that needs to be done to cover yourself if | | | | for a profit, or refinance into a long term loan and rent |
| any repairs are added later in the rehab. If you did a | | | | it out to a tenant. Whatever your exit strategy is, be |
| good job with the initial inspection, and no additional | | | | sure to do it quick. Hard Money loans are normally due |
| repairs were needed then you can return the money | | | | in full 6-12 months after origination. |
| or keep it. If you decide to keep it do not spend the | | | | |