Investors can get hard money loans for real estate just about anywhere in the country. Finding hard money lenders with money to lend isn’t the hard park. No, the hard part is making a solid case guaranteed to get your loan application approved. Needless to say that not every real estate investor has what it takes.
So, what does it take? Expect the usual: a loan application, supporting documentation, and basic information about the property you hope to acquire. Just know that these are the basics. They represent the starting point. If you want to guarantee loan approval, be prepared to bring the following four things to the table:
1. A Property With Real Value
Topping the list is a property with real value. And by ‘real’, think property that has enough intrinsic value to make it worth investing in. You need this sort of property because the property itself will be collateral for the loan. If it doesn’t have enough intrinsic value, you are going to have a hard time convincing a hard money lender to finance the deal.
Actium Partners, a Salt Lake City, UT hard money lender that operates in Utah, Colorado, and Idaho explains that hard money lenders can accept any collateral that suits them. But more often than not, investors offer the properties they hope to acquire as collateral. There must be enough value to cover the amount being borrowed.
2. Reasonable and Workable Strategies
Next, you need to have both an investment strategy and an exit strategy. Your two strategies must be reasonable and workable. Without them, it is nearly impossible to convince a hard money lender that you know what you’re doing.
In terms of your investment strategy, what do you intend to do with the property after you acquire it? How is the property going to generate revenue? How are you going to increase its value? In terms of the exit strategy, you need to present a reasonable plan for paying off your loan on time. More than one hard money loan application has been denied because the borrower did not offer an exit strategy suitable to the lender.
3. A Significant Down Payment
While it may be true that hard money is easier to come by than conventional financing, that does not mean lenders are throwing money around like candy. Hard money lenders are very specific about who they lend to and how much they lend on any given project. Furthermore, loan-to-value (LTV) ratios tend to be much lower in the hard money industry.
What does this mean to you? It means that you will have to bring a sizable down payment into the deal. A 50% LTV is not out of the question, meaning you would have to bring in at least half of the purchase price in cash. Whether that cash comes from your own financial reserves or some other source is immaterial.
4. The Right Mindset
Finally, hard money lenders are looking for investors with the right mindset. While making money in real estate is simple in principle, it is hard in practical terms. There is a lot of work to do. There are plenty of hurdles to overcome. Hard money lenders want to see that investors are ready and willing to do whatever it takes to succeed. If the mindset is not there, lenders tend to be less than enthusiastic.
If you bring these four things to the hard money table, your chances of getting approved are pretty solid. If not, you might not be the ideal candidate hard money lenders are looking for.
