So you want you are ready to get into the real estate rehab game. You’ve looked at 100’s of properties, started submitting offers, but are wanting to figure out your options. Here is what I have noticed about the financing end of the game.
To get the stellar deals it’s usually best if you submit an offer with no loan contingency.
Proof of Funds Letter
Most of the time agents will request a proof of funds letter to be submitted with your offer. You can use bank statements, stock portfolio statements, certificate of deposit statements or other things. This process is very important to make your offer strong, so figure something out! Some Hard Money Lenders offer this to their clients, but most of the time it is just a pre-approval letter that most asset managers will not accept by itself.
There are quite a few people that advertise hard money out there. Check with your local REI club to see who the real players are. You want to work with the reputable ones who actually do deals, because if one backs out last minute you’re going to get caught with your pants down and probably lose your earnest money deposit. It is important that you find lenders willing to loan on the Appraised Repaired Value (ARV).
Typically, once you have a deal under contract you can shop it to hard money lenders. They will want to see an appraisal or force you to order an appraisal from one of their approved appraisers. After they get their appraisal they will offer a certain loan amount with certain terms. If this is acceptable, you can move forward. Hard Money Lenders almost always take the 1st mortgage position.
In some scenarios when the agent/escrow officers learn that you will not be using cash but hard money they freak out and tell say that they have to get approval from the seller. Usually, they whine a bit and do it, because everyone wants to get the deal done.
If you are planning on getting serious about the business you should talk to a couple Hard Money Lenders and get an idea of their terms and work on a pre-approval.
If you have connections with people who have money it is typically cheaper to work with private investors. Be careful though, some investors require a lot of babysitting along the way. From my experience sometimes it is easier to work with an experience party and pay a little extra.