Has your loan request been turned down by the bank because your credit score doesn’t qualify? Don’t let that stop you from purchasing the property you’ve had your eyes on for years!
Commercial bank loans aren’t your only financing option in the world of real estate. Options like hard money loans are convenient, hassle-free, and easy to come by. A reliable hard money lender can help you thrive as a real estate investor.
Here’s a checklist for you and your lender that may come in handy the next time you apply for a private loan:
Having a plan
You can’t go about a property investment without being clear on how you’ll finance it. A rock-solid hard money plan entails the following details:
- What will the terms and conditions be?
- What will the loan duration be and how will the installments be paid?
- How do you intend to repay the loan? Do you have another stream of income that will support repayment?
- What will your exit strategy be?
- In case of a fix and flip, how much will the repairs cost?
- How will you allocate the loan amount across all the repair costs?
All of the above-mentioned details should be well-documented and discussed in depth with the lender in advance. This also establishes your trustworthiness and credibility.
Location is one of those factors that can make or break an investment deal. Before jumping into an investment, it’s important that you choose a neighborhood that has fair property prices. Common factors that determine property prices are ease of access, safety, presence of leisure activities, and quality of life.
When you first visit your hard money lender, make sure you have pictures of the neighborhood, as well as the surrounding areas. Take along all the details you have of the location that prove why it might be a lucrative opportunity. This is important because if the lender thinks that the location is not safe, they might not approve your loan request at all.
Collateral secures your loan and guarantees that the lender that you will pay back. In case you default, the lender will sell the collateral and keep the value. Commonly acceptable collateral includes cars, bank savings deposits, immovable property, precious metals, and investment accounts.
The exact nature and the value of collateral depends on the lender and their preferences. Lenders should properly define what they may or may not accept as collateral. Along with the collateral, you must also provide evidence that you’re the rightful owner and entitled to resell it.
If it’s gold or any other precious metal, the lender must make sure collateral is authentic and pure. For property, always go through the documents well before handing over the loan.