Hard money or private financing is an excellent tool for real estate investors looking to "flip" a property for a quick return on investment. In today's lending world it is more and more difficult, onerous & time consuming to obtain a conventional loan to finance the acquisition and rehabilitation of investment real estate. Even when the project seems like a "no-brainer" to you, a conventional lender can take up to 90 days to fund and close a loan...if they do at all. The fact is, in today's real estate world, hard money or private financing is the best tool available for real estate investors looking to make a quick profit by (1) purchasing a property in need of renovations for short money, (2) making the necessary renovations and (3) then listing the property for sale at a competitive "quick sale" price.
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A smart, savvy and aggressive real estate investor will see the benefit in paying the higher interest rates and fees associated with hard money financing and will know that by using private financing as an investment tool and strategy there is more money to be made in the long run than waiting for traditional financing to come through.
The most important thing for real estate investors looking to utilize hard money as a tool to rehab and flip properties is to accurately price all construction costs and then build in the proper "buffer" money in the event the project goes over budget. The next most important thing is to know the market; more specifically, know what the property will be worth when the renovations have been completed. This will allow investors to aggressively price their properties to sell quickly. All too often I see borrowers get into trouble because greed gets in the way and either the property is not priced to sell or the construction budget falls far short of the actual cost to properly rehab the property for a fast resale.
Today's private lending environment is full of lenders with money to lend and if a borrower/investor does his due diligence, accurately prices the cost of renovations and lists the property at 10% under market value to ensure a quick sale there are profits to be had.
As a rule of thumb, you should be prepared to put down 25-30% of the purchase price and should then be able to find a hard money lender willing to lend 100% of construction costs so long as the total loan amount does not exceed 70% of the as-completed value of the property.
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