An important item to have when considering a real estate investment as a private investor is a first trust deed. This will take priority and have less risk than second trust deeds. Since first trust deeds are recorded first they must be settled first by the holder of the deed. When there is a first and second deed trust, if the situation comes to claim the property for non-payment and there is not enough money to satisfy both, the second trust deed holder will not be paid.
Private real estate investing with trust deeds may offer high returns and low risk. While the function of a trust deed may seem similar in function to traditional mortgages and double-digit returns on trust deed investments sound tempting, the smart private investor will require a due diligence report on any potential trust deed investments. Remember that trust deeds involve three parties: a borrower, a lender and a trustee. That third party will hold legal title to the property until the borrower has paid the lender in full. Should the borrower default on the loan, the lender is able to take possession of the property. Investors will loan money direction for a trust deed or by purchasing an existing promissory note.
If investors purchase 100 percent of a single trust they will have full ownership of the note. However they must have the capital to finance an entire loan amount when interested in purchasing whole trust deeds. This is when private investors without that capital may turn to hard money lenders for funding.
When multiple investors contribute funds to purchase interests in a trust deed, a single investor doesn’t pay the entire sum. While this method may be preferred for those with less money to invest, there can be complications if the borrower defaults on how to proceed with taking repossession. When an investor has a fraction of a trust deed, they may not have possession of original documents which can present problems later on.
When private real estate investing, an investor should request a Preliminary Title Report and exam it for any facts that may affect the market value of the property in question. Items of concern would be a large difference in the assessed value and the appraised value of the property or any unexplained legal issues. These are things that will make it difficult when an investor with a promissory note needs to recover the investment in case of foreclosure.
Showing posts with label hard money lenders. Show all posts
Showing posts with label hard money lenders. Show all posts
Saturday, June 19, 2010
Hazard Insurance Is a Must with Private Investing
In these economic times seeing the market fluctuate is not uncommon. During times such as we are currently experiencing private lending has become a favorable transaction for many borrowers. The meltdown of the global economics has made the use of hard money lending for private investors even more important than ever before. Borrowers are finding that private lenders do not charge points and that the lenders will consider the borrower's needs that may not fall inside the defined parameters of a specific transaction.
Private real estate lending is seen to be the best way to fund a short or long term investment strategy for many borrowers. While this type of lending works similar to bank loans, a bank is a private individual with no stringent lending criteria and works with a Note and Deed of Trust or Mortgage for funding your deal.
Private lenders provide faster, more efficient transactions. With fewer questions the process moves faster. Hard money lending allows a fast closing motivates many sellers these days and along with paying cash you will get a lower price than the conventional method of selling through a realtor.
A hard money lender may require real estate investors to furnish certain documents that will secure the investment capital. A Deed of Trust or in some states a Mortgage will be required. This will be recorded in the county clerk’s office and secures the investment against the real property as collateral. A Promissory Note is also requested which is the lender’s collateral for their investment capital. An Appraisal may also be required. Most real estate investors research the value of a property online when making their decision on this investment in the beginning. If the property to be purchased requires significant renovation, an appraisal may not be necessary if the purchase price is below market. If an appraisal is done ask the appraiser for an ARV (after repaired value) figure on the appraisal.
Most important to have is a Hazard Insurance Policy. You should list the ‘mortgagee’ as the private lender to protect them in case of fire or natural disaster, etc. When making private real estate investments, regardless if for a long term or short term, remember that hazard insurance is a must to protect the private investor’s money as well as your own. Private lending is a growing trend to make up for all that was lost with the weakened economy.
Private real estate lending is seen to be the best way to fund a short or long term investment strategy for many borrowers. While this type of lending works similar to bank loans, a bank is a private individual with no stringent lending criteria and works with a Note and Deed of Trust or Mortgage for funding your deal.
Private lenders provide faster, more efficient transactions. With fewer questions the process moves faster. Hard money lending allows a fast closing motivates many sellers these days and along with paying cash you will get a lower price than the conventional method of selling through a realtor.
A hard money lender may require real estate investors to furnish certain documents that will secure the investment capital. A Deed of Trust or in some states a Mortgage will be required. This will be recorded in the county clerk’s office and secures the investment against the real property as collateral. A Promissory Note is also requested which is the lender’s collateral for their investment capital. An Appraisal may also be required. Most real estate investors research the value of a property online when making their decision on this investment in the beginning. If the property to be purchased requires significant renovation, an appraisal may not be necessary if the purchase price is below market. If an appraisal is done ask the appraiser for an ARV (after repaired value) figure on the appraisal.
Most important to have is a Hazard Insurance Policy. You should list the ‘mortgagee’ as the private lender to protect them in case of fire or natural disaster, etc. When making private real estate investments, regardless if for a long term or short term, remember that hazard insurance is a must to protect the private investor’s money as well as your own. Private lending is a growing trend to make up for all that was lost with the weakened economy.
Saturday, January 30, 2010
Financing Foreclosure Purchases
With the onslaught of foreclosures on the market, many real estate investors have found these properties are great investments. They have also learned that getting financing for them may not be easy as lenders are tightening their practices.
To avoid traditional financing, a few real estate investors count on turning the properties they buy over quickly and will use high limit credit cards to finance their investments. This can be risky and the investor that does this could find themselves in trouble fast. Other investors are becoming partners by putting their monies together. This allows them to act quickly on foreclosed properties and then they split the profit when the property is sold.
Some banks offer a low line of unsecured credit to investors, considered a business loan not a mortgage loan. They are short term repayment versus long term as a mortgage loan. This gives the real estate investor operating capital and is paid off as soon as the property is sold.
Going through hard money lenders is another option. They do not have the strict lending standards as banks. The interest rates are higher with hard money lenders, but they are short-term solutions that experienced investors use to turn a property around quickly. This type of loan is repaid in full when the property is re-sold.
FHA loans are a financing option when purchasing foreclosed properties. This type of financing is not good for those who buy and then turn over the property quickly. For a first time buyer, this is great finance method to get a good price on their purchase. If a foreclosure needs a lot of work the FHA loan can be used to fund the repairs. This can increase the value of the home for resale. A FHA loan is a long-term investment and can be a great start for new investors.
If an investor is planning on a quick turnaround, a discount mortgage is a good option. This type of mortgage has flexible interest rates, meaning that the rate can go up in the future. If the initial rate is a good rate and the investor is comfortable that they can sell the property before the rate goes up, this method is a good option. However if a quick sale is not possible it is wise to refinance with a traditional mortgage with a fixed rate to protect their investment.
Become a hard money lender or buy wholesale properties as a real estate investor!
To avoid traditional financing, a few real estate investors count on turning the properties they buy over quickly and will use high limit credit cards to finance their investments. This can be risky and the investor that does this could find themselves in trouble fast. Other investors are becoming partners by putting their monies together. This allows them to act quickly on foreclosed properties and then they split the profit when the property is sold.
Some banks offer a low line of unsecured credit to investors, considered a business loan not a mortgage loan. They are short term repayment versus long term as a mortgage loan. This gives the real estate investor operating capital and is paid off as soon as the property is sold.
Going through hard money lenders is another option. They do not have the strict lending standards as banks. The interest rates are higher with hard money lenders, but they are short-term solutions that experienced investors use to turn a property around quickly. This type of loan is repaid in full when the property is re-sold.
FHA loans are a financing option when purchasing foreclosed properties. This type of financing is not good for those who buy and then turn over the property quickly. For a first time buyer, this is great finance method to get a good price on their purchase. If a foreclosure needs a lot of work the FHA loan can be used to fund the repairs. This can increase the value of the home for resale. A FHA loan is a long-term investment and can be a great start for new investors.
If an investor is planning on a quick turnaround, a discount mortgage is a good option. This type of mortgage has flexible interest rates, meaning that the rate can go up in the future. If the initial rate is a good rate and the investor is comfortable that they can sell the property before the rate goes up, this method is a good option. However if a quick sale is not possible it is wise to refinance with a traditional mortgage with a fixed rate to protect their investment.
Become a hard money lender or buy wholesale properties as a real estate investor!
Monday, January 4, 2010
Credit Criteria and Hard Money Loans
If you are a real estate investor interested in buying and rehabbing properties, the first step in your real estate investment process will be preparing your finances and finding your financing sources. Operating capital is critical in any business and it is especially important in real estate investing.
Today lenders demand excellent credit for conventional financing. They also place a great deal of importance on your current situation such as time on the job, savings and assets and the value of the property to be purchased. If you are an established real estate investor, this examination of your finances is probably not a problem, but first time investors may find getting financing more difficult.
When you deal with hard money lenders, credit is generally not a consideration in their decision. Having a strong exit strategy and your plans to repay the loan are the important factors for hard money lenders. They will use their gut feelings about the borrower in making a decision more often than crunching numbers.
A hard money loan, also known as private financing, can be your best source when conventional lending does not come through. Interest rates from private lenders are generally higher, but since it is a short term loan this is generally not a major concern for most investors. Private loans are to help the borrower and the lender make money with as little hassle and red tape as possible.
With either method of borrowing, conventional or private, repayment of the loan is important and the property in question is used as collateral. The conventional lender will have standard guidelines such as ownership seasoning. A hard money lender looks at what the property will be worth after rehabbing.
Hard money lenders have different underwriting of loans from conventional lenders as well. However, whether pursing traditional lending from a financial institution or private cash the criteria for the loan remain the same. Collateral, capacity, credit and character are the points that both lenders will look at, just from different perspectives.
Today lenders demand excellent credit for conventional financing. They also place a great deal of importance on your current situation such as time on the job, savings and assets and the value of the property to be purchased. If you are an established real estate investor, this examination of your finances is probably not a problem, but first time investors may find getting financing more difficult.
When you deal with hard money lenders, credit is generally not a consideration in their decision. Having a strong exit strategy and your plans to repay the loan are the important factors for hard money lenders. They will use their gut feelings about the borrower in making a decision more often than crunching numbers.
A hard money loan, also known as private financing, can be your best source when conventional lending does not come through. Interest rates from private lenders are generally higher, but since it is a short term loan this is generally not a major concern for most investors. Private loans are to help the borrower and the lender make money with as little hassle and red tape as possible.
With either method of borrowing, conventional or private, repayment of the loan is important and the property in question is used as collateral. The conventional lender will have standard guidelines such as ownership seasoning. A hard money lender looks at what the property will be worth after rehabbing.
Hard money lenders have different underwriting of loans from conventional lenders as well. However, whether pursing traditional lending from a financial institution or private cash the criteria for the loan remain the same. Collateral, capacity, credit and character are the points that both lenders will look at, just from different perspectives.
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