Why Investors Use Alternative Mortgage Finance to Fund Your Real Estate Deals?
No Money Down Real Estate Investing. None?
Have you ever heard of real estate "gurus" yell out "YOU DON'T NEED MONEY TO INVEST IN REAL ESTATE!".
Well me too- Its BS and nothing less than that.
You do need money. That'd like planting a seed and saying you don't need water. It is extremely necessary, without it (money) your business cannot grow- without it (water) your plant will die. Some "gurus" will get passed the "you don't need money" antic and get to the point, which is you need money but it doesn't need to be your money. In many cases, you will still need to fork-up some cash. They say 'OPM' (Other Peoples Money). Who are other people?
- Who ever will give their money to a newbie
The concept of other peoples money is fine. If everything works out you manage to build wealth or, at least, another stream of income for you can a family member. Plus you prove to them and yourself that you can do it! Congrats!
What happens when you run out of finances to borrow from friends and family? and your money is tired up in a property - or - you never had a close person to borrow from in the first place. Then, if you are truly determined to make something happen you reach out for alternative resources to fund your deals. That's when Alternative Mortgage Finance can come in to save the day!.
What is Alternative Mortgage Finance?
Well, alternative mortgage finance is simply the alternative to conventional mortgage finance which is received from traditional Banker and Mortgage Brokers. Some would call it unconventional mortgage finance or Creative Real Estate Investing- either way you put it, it means it different and allows for financial and time flexibility.
Basically, you, the borrower, are seeking ways options and sources to finance an investment property without seeking the help of a Bank. Rather, you are seeking the help of a Hard Money Lender or a Private Lender. A Hard Money Lender provides financing for Real Estate Investors- I like to see it as investors helping investors.
Why would someone seek Hard Money Lending?
Investors seek Hard Money because they have deals that are time sensitive. Time plays a major part in decision making for Real Estate Investors. If you are a “Flipper” you probably find amazing deals all the time while investment shopping but your money is tied-up in other properties that you just purchased and started the rehabilitation process.
Your calculations show that this new find will be profitable- you just need the money quickly before the deal is off the market- What can you do? At that point, the investor would contact an Alternative Finance provider or Hard Money Lender so to have his/her property financed in a short period of time (about 4 weeks is the shortest I've seen a loan close). Loans from Banks can take months before being approved. In the Real Estate Investing game- that can be a very long time. That Is FOREVER.
Similarly, an investor might have found an investment property that they are looking to reconstruct in order to Hold and generate Cash Flow from the Rent Units. The only issue is they need financing to help them finish the reconstruction of the property. This loan will help the investor finish their project and then pay back the loan in just a few months. You have to know your stuff. Alternative Mortgage Finance is not for novice investors. Actually, many Hard Money Lenders only loan to businesses or investors under an LLC/ Corporation.
Flipping- Use Hard Money
Hard Money Loans are Short Term Loans
These are unconventional because of the time it takes to obtain the loan and the source from which you are getting the loan. This does not mean that the pre-qualification and qualification process is any easier. There are some big differences such as, we consider borrowers with ‘poor credit’ and our loans are ‘equity based’ (for more information check out application).
Also “Interest rates are typically higher than conventional commercial or residential property loans because of the higher risk taken by the lender. Most hard money loans are used for projects lasting from a few months to a few years. Hard money is similar to a bridge loan, which usually has similar criteria for lending as well as cost to the borrowers.” - Wiki
Hard Money loans are given on the quick sale bases which is why these loans are short-term loans. Lenders are looking for the appreciated value or the value over any particular period of time. They want to know how much the property is worth “as-is” which means they lend on the Loan-to-Value (LTV). So a lender needs to know how much the investment property is worth, how much is costs NOW and how much you are looking to borrow.
No Money Down
This is a popular term- that's gets thrown around way too often if you ask me. Yes, in some cases you can get the full loan with no money down. There are no guarantees. These loan opportunities come to the right investor. You need to have your information well packaged (AlternativeMortgageFinance.com) and presented for lenders to trust that you are qualified to make intelligent financial assessments.
The lender wants to know if you already own property (they want to know that you have ‘skin in the games’- that's you have something to lose). Lenders will check credit score (although not a deal breaker), how much you're putting into the property, Where the money is coming from, Do you have a partner(s), what are their credentials? and so much more. There are actually a lot of paper work that needs to be exchanged. Still there won’t be nearly as much as the regulations and red tape involved with conventional loans.
Find What You Need
The point is- if the numbers work and you can prove you know how to work the numbers the odds are on your side. It can be all so complicated for a newbie in investing world- even for a seasoned investor who’s never used hard money. Don’t be too shy to seek help or ask questions.
Because these types of loans are given by companies and private lenders, it is very important that you have as much information about yourself and your business together. Transparency is key, as is communication. You don't want your time wasted and I'm sure investors don’t want their time wasted.