California real estate offers plenty of opportunity for savvy investors. According to Zillow, a real estate website, home values have jumped by 6.9 percent over the course of the past year. This means that anyone looking to make money with real estate in California needs the right assets in order to move forward with the deal.
This is where hard money funding for California real estate investment comes into play. Hard money loans have become an excellent alternative to traditional financing for home buyers, especially those who are interested in flipping homes.
There are a number of benefits that hard money funding has over traditional financing. Gaining a working understanding of hard money and how it works in the California housing market will be helpful in forming a real estate investment strategy. You’ll also need to know some of the downfalls of hard money lending, such as higher interest rates and shorter terms, combined with higher down payments. It’s up to you to make sure the benefits outweigh the drawbacks of hard money funding.
An Intro to Hard Money Lending in California
Hard money funding refers to any type of funding that comes through private individuals or organizations. Typically, in California, hard money lenders are a group of investors or private entities that provide capital for those interested in buying real estate. For example, we offer hard money funding for borrowers interested in fixing and flipping properties.
A hard money loan is generally secured by the real estate itself. When applying for hard money financing, your credit score certainly comes into play, but so does the condition and attributes of the property in question. When it comes to a fix and flip property, the lender is usually equally as concerned with the after-repair value as it is with the credit score of the borrower.
As an overall rule, a hard money lender in California will fund approximately 80 percent of the property, leaving you with the responsibility of funding the remaining 20 percent from another source of financing.
You’ll also need to know that California hard money lenders generally only operate within a specific geographic region. This means that the interest rates that you’ll have for a hard money loan will be different based on the location of the desired property.
The interest rates are typically higher for a hard money loan than a traditional bank loan. The main advantage of a hard money loan is the speed at which the funding can be provided, allowing you to swoop in on an ideal property. A hard money loan can be received in as little as a week, which can be compared to the several weeks or several months of a traditional loan.
The Top California Hard Money Lending Markets
As we discussed above, different hard money lenders operate in different regions. Below are the top regions in California for hard money lenders. Gaining an understanding of these markets will help you make your decision about which market you’d like to pursue your hard money loan within.
1. Sacramento
Sacramento is one of the most promising real estate sectors thanks to a bustling economy and reasonably priced homes. According to Zillow, home prices have grown by 11.3 percent in the past year.
While you won’t find a lot of competition for hard money loans in Sacramento, there are still plenty of hard money funding option available in this market.
2. Los Angeles
With more than a dozen or more hard money lenders in Los Angeles, there are plenty of options for people seeking a hard money loan. Interests rates tend to fall between 7 and 11 percent for hard money loans in Los Angeles.
The median sale price of a home in L.A. has grown by 5.6 percent over the course of the past year, meaning there’s plenty of room to make money by flipping houses in L.A.
3. Orange County
Orange County has plenty of inventory available, and there’s competition among hard money lenders to finance home purchases. Loan rates in Orange County often fall between 7 and 10 percent, which is much lower than the California average.
Additionally, Orange County homes saw a 5.7 percent increase in the median sales price between 2016 and 2017. It’s a growing area with plenty of opportunity.
4. San Diego
San Diego’s housing market is growing by leaps and bounds, with the average home value surpassing $555,000. With a median list price of $625,000, home sales have seen an increase of 6.8%. There are several hard money lenders that operate in this area, creating healthy competition for buyers.
5. San Francisco
Much like Orange County, there is competition among hard money lenders to finance home purchases in San Francisco. This results in interest rates being much lower than the average, falling around 7 to 9 percent. Your individual interest rate will depend on the property’s location, your credit and the profitability of the property.
The median home value in San Francisco is $1.14 million. During the year of 2016, the average profit per flip was an astonishing $140,000.
Weigh Your Options Carefully
Take time to consider your options carefully before pursuing a hard money loan or a traditional loan. Keep in mind the risks and rewards of each type of loan, as well as how important speed is in your situation. If you need funding right away to secure your ideal property, hard money funding in California may be exactly what you need.
