These types of loans for real estate investing differ in important ways—including the application process, financial criteria, and cost to the real estate investor.
Congratulations—you’re getting into rehab real estate investing and you’re shopping around for a property. But first, you need to understand where and how to get the funding for your fix & flip real estate investment. If you are not using cash (your own or from others in your circle), you must establish relationships with vetted and respected funding sources before you make an offer to the owner or the real estate agent.
Can you borrow from a bank?
Short answer: banks don’t like lending money for short-term real estate investing.
They can’t compete with hard money lenders or private lenders and are not as agile. The bank lending process is too long with too much red tape to meet short-term real estate investors’ needs.
Hard money lenders
These are usually private institutions or groups of individuals with money available for real estate investment purposes. Most hard money lenders will loan you most of the capital to buy the property, make the necessary repairs, and refurbish it.
The “hard” part reflects their strict and clearly defined repayment schedule; “soft” money lenders (usually private lenders, like Peak Private Lending) have easier terms with more flexible criteria for approval. Hard money lenders generally have an easy application process, they understand the rehab process, and offer speed in lending (usually within 14-21 days) to close the transaction. They have short-term loan programs tailored to real estate investors’ needs.
Issues to consider:
- They will only loan you 55-70% of the property’s after repaired value (ARV). If you are seeking a high loan to value (LTV), you need a h4 credit rating and solid verifiable financials.
- They charge higher interest rates than private lenders, generally 10-15% for a period of twelve months up to 3-5 years.
- They also charge points (a percentage of the loan value). We’ve seen figures range between two and ten points on these loans.
- Lower equity in the property or a poor credit rating or financials mean higher interest and higher points or a denial of the loan.
- They require a certified property appraisal, property and title insurances, three to six months of reserve funds, and good credit.
- It is common to have other fees attached to the loan.
- Rehab funds are paid out on a draw basis after the work for that period is completed and a third-party inspection is performed (usually one to two weeks.
- They don’t lend to beginning investors. Experience is required.
These terms will vary among lenders so shop the loan package criteria of several hard money lenders if that’s the route you’re taking.
Private real estate investors are in the business of short-term real estate investing and have the capital for the loan. When searching for private lenders, look for these key differences:
- No points on the loan amount
- Lower loan interest rates of 8-10%
- No loan application process
- No upfront fees
- No credit or financials requirements
- High LTV available
Issues to consider with potential individual investment partners:
- It can be difficult to convince them to lend you hundreds of thousands of dollars if they are not a professional private lender or accredited investor.
- You must educate and cultivate them so they understand the process and become a valuable asset to your investing business.
- If things don’t go as planned, your personal relationship can be destroyed.
Working with Peak Private Lending
As NJ real estate investors ourselves, lending to other real estate investors, we get it! With our private funding and company capital, Peak Private Lending offers tremendous flexibility as well as guidance to investors at all stages of their fix & flip business. Our loan program offers:
- Rates starting at 8.99%
- Loans up to 90 % of purchase price
- Funding of up to 100% of rehab cost
- Up to 75% loan to value
- 12-month term
- Closing within 10 days
- No appraisals required
- No credit checks or bank statements
- No pre-payment penalties or rehab draw fees
- Next day rehab draws with in-house approvals
- We fund beginning investors – no experience needed with our support
We’re private lenders based in Bergen County, providing funding solutions for deals in New Jersey, New York, Pennsylvania, or Florida. Give us a call to discuss your needs or set up a deal analysis for your fix & flip opportunity at 201-836-7300, or use our handy contact form.