Many people have likely seen or at least heard of reality television shows that follow the journey of real estate investors who purchase a property that requires some tender loving care and carefully transform it into something they can sell for a significant amount more than what they spent on it. This is also called flipping a property. While it looks relatively easy when you see how they do it in a television series, it actually requires getting the proper funding to get the work done. If you choose a traditional loan, odds are you will only be approved for a percentage of the purchase price, which still requires you to gather a down payment and find a way to fund the repairs and renovations you want to make. This is where California hard money lenders come into play. They often offer fix and flip or rehab loans that not only help you purchase the home, but also pay for the materials and labor needed to turn the home around for a profit in a short period of time. Before you begin this venture, though, it’s important to understand how to best use these loans to your advantage.
The Basics of These Loans
When you look for hard money lenders in California, you will see these types of loans are quite different from the traditional loans you may be familiar with that are offered by banks and other lenders. A hard money loan must typically be paid back in a shorter period of time than your usual mortgage. For instance, a mortgage must be paid back over a period of somewhere between 25 and 35 years depending on the exact terms of your loan. However, when you’re dealing with California hard money lenders, the terms of your loan will be much shorter. Even though the higher interest rate may seem like too much when you compare it the rate on loans over a longer term, when you consider the short period of time during which you will borrow the money, you typically don’t spend a lot more over the life of the loan. The trade off is you can usually qualify for a higher percentage of the purchase price, as well as the cost of the renovations you will make, and you can get approved in a short time.
Typical Loan Rates and Terms
Hard money lenders in California can offer vastly different rates and terms because they aren’t under the same regulations as banks and other lending institutions. In general, companies and individuals that offer this type of loan are usually real estate investors themselves who prefer to take a more passive approach while someone else finds the properties and ensures the work is properly done. However, there are typical loan rates and terms you should familiarize yourself with before you choose to work with specific California hard money lenders to ensure you are getting the most for your money. For instance, you can expect the terms of your loan to last between one and three years, giving you just enough time to make the repairs and other renovations and then sell the house on the market for a profit. The good news is you will often get an answer on your approval in just a few days at the most, so you’ll be ready to make your purchase and get started more quickly. Rates for these loans typically range between 7 1/2 and 12 percent, with fees between 1 1/2 and 3 percent. Closing costs are similar to any real estate transaction and range from 2 to 5 percent. Be sure to compare these rates and fees between California hard money lenders to help you make the right choice.
Qualifications for These Loans
If you’ve ever gone through a bank or other similar lending institution to finance a home or other property, you understand how much information and time they require to get you approved for the loan. They often take a deep look at your current financial standing, your credit score and other pertinent information that helps them gauge your ability to pay back the loan. This can make it more difficult to get approved if you have a less-than-desireable credit score or if you don’t have the funds to back it up. Hard money lenders in California operate differently. In many cases, they don’t even consider your credit score or any other financial information other than the current value of the property you intend to buy, the cost of the renovations you want to make and the overall boost in value those changes will create. As long as they can clearly see they stand to turn a profit from your efforts, you are likely to be approved for the loan.
Who Can Benefit from These Loans?
Not everyone stands to profit in the same way when it comes to working with California hard lenders. In fact, these lenders are typically looking for certain types of people who are interested in buying and flipping properties for a profit. A good company will have a keen eye for who is in this type of project for the right reasons and will be the most likely to generate the results they need to turn a profit. While it’s not impossible to get this type of loan if you’re a newer investor, many hard money lenders are looking for individuals who have som experience in the area. In fact, some may require two to three years of positive experience in the flipping or rehab side of real estate investing. However, if you are a new investor and can provide proof you will be working with qualified contractors to get the work done properly, you stand a higher chance of getting approved for a hard money loan as well. This type of loan can also be beneficial if you want to compete with individuals who have the cash on hand to make one of these purchases.
There are many kinds of real estate investing that can help you make money buying and selling properties. One of the best ways to do this is to purchase properties that are selling for low prices because they require a bit of work before they are in the condition people are looking for. Once you fix the home and make any quality of life renovations that will help boost the value of the home, you can then turn around and sell it for a profit. If this sounds like the perfect solution to your real estate investing needs, it may be time to start looking for California hard money lenders to work with.
