RealtyMogul.com knows that real estate professionals have financing choices. Many lenders, however, are slow-moving, offer terms that are too tough, or select only the best lending opportunities – so that borrowers may find themselves presented with less than optimal sources of financing. Borrowers who are interested in a rehab loan for a non-owner occupied investment property should consider alternative financing sources, which can be much faster, but not guaranteed to be faster than traditional banks mired in bureaucratic procedures.
Borrowers who are interested in securing a loan from a private lender should consider these five questions in determining whether a private loan is a viable option for them. Consideration of these issues may also help determine whether their loan gets successfully funded.
1) What criteria other than credit will the lender require? This will be more important if you have bad credit; the lender may need supporting materials to determine your credit worthiness. Below are some of the most common criteria the lender may require:
● Employment and income history
● Ability to document your income
● Desired loan amount
● Amount of available money in your bank and investment accounts
● The appraised market value of the subject property
● The type of property you will be using as the security for the loan
● Occupancy: whether you will live in the property or use it as an investment property (since private lenders generally won’t consider loans for owner-occupied properties).
2) What return do you expect to earn? Understanding the expected return of the project is another crucial thing you should know before securing your loan. It will be the most important to make sure you can absorb the interest payments on the loan. Having a clear idea of the return you expect to earn is needed for you – and any lender – to make a clear-eyed assessment of the project you want to enter into.
3) Are you working with a contractor? Unless you’re a professional rehab investor, private lenders will more likely fund your loan if you plan to use a professional contractor for the project. Professional contractors have knowledge and experience, and that provides a level of assurance to the lender that your renovations will be completed on time. Finding the right contractor is very important and there are many factors you should carefully consider:
● How experienced is he/she?
● Does he/she have a license?
● Is he/she able to provide extensive references?
● Does he/she carry workers’ compensation and general liability insurance
● Has your contractor showed you their previous work?
● Is your contractor a “team player?”
4) How many rehab investments have you completed? If you are not using a contractor, the lender will want some assurance that you know what you are doing and that you can successfully complete the renovations within the proper timeframe. Typically private lenders require a minimum of 1 to 3 successfully completed, self-directed projects. A good idea is to keep a project book to show samples of your work; you might also offer to provide the lender with on-site inspections of your other projects.
5) What is your exit strategy? When it comes to exit strategies, you should have at least one or two established plans from the start. Exit strategies are important if the project does not proceed as planned, and crucial when the market turns against you. Some typical exit strategies include:
● Lease with a purchase option
● Lowering the price for quick sale
● Wholesale the property to another investor
● Rent out the property
Therefore, you should always be asking yourself, “Do I have a plan, timeline, and exit strategy?” If so, you should be able to proceed with your rehab investment and more likely secure a private loan. The most important thing, as is often the case with real estate, is to find good transactions, both in terms of the quality of the properties and potential for projected return rates of the specific deal.
Finally, think about the type and nature of the lenders you are considering. Many lenders are focused on their local market, wanting to invest near where they live. The use of lenders with an online presence and broad geographic diversity, however, can mean that you are really borrowing from a broad pool of “lenders” from across the country. This can be advantageous if, for example, your local region has been hit with a downturn and local lenders are too skittish to lend further in the near term. In these cases, lenders can invest in projects nationwide. This also means that if your market is not one with an established private lending market, you will now have a potentially stronger lending partner upon which to rely. Investors with online crowdfunding platforms such as Realty Mogul have broad access to properties in different markets, and those non-local projects may often be more attractive than those near their place of residence.
Overall, if you are thinking about securing a private money loan, there are many benefits in doing so. Realty Mogul is leading the way in creating crowdfunding for real estate, where rehab investors can get the loan they need for their rehab investment. Private money loans are much faster and more efficient than a traditional bank loan. Rehab investors backed by private money also have far greater control over their deal. Finding your next private money loan can help save you plenty of headaches; instead of worrying about traditional banks and not having control over the deal, you can proceed with your rehab investment without having to worry about common roadblocks and setbacks.
Private loans offered by RealtyMogul.com may be the fastest approach to securing your next rehab investment loan. Our platform enables a simplified application process along with quick and efficient underwriting, and provides consistent answers, competitive pricing, and gets letters of intent out immediately. Our mission is to use technology to simplify the lives of rehab investors.
For more information on how to seek capital through the Realty Mogul marketplace, please visit www.RealtyMogul.com/rehab.