Imagine that one day when you are on vacation in Stowe, Vermont you come across this beautiful luxury property for sale. You are convinced that the stars have aligned for you and that the property is perfect for your needs. Right at that instant, you realize that you need to make a quick move because you are sure there are other people who have seen the house and might make an offer as well.
After short deliberations with your spouse, you both decide that you need to make an offer of your own but you also want to improve your chances of getting the property over everyone else. You think fast and realize that you have access to some investors who can get you a hard money loan.
You begin to get excited because the luxury real estate in Stowe, Vermont is perfect for this sort of loan, because the property will certainly turn heads due to its exquisite location and because it is rare that properties in that area are ever for sale. They sell like hot cakes. You also get excited because you have a tidy sum stashed away because you were planning to buy a property.
There is just one problem however – you have heard through the grapevines that getting a hard money loan is quite difficult. Well, one advantage that you have is that you are somewhat acquainted with some lenders, but you still don’t want to take any chances. Therefore, you call a friend of yours in the real estate business and he gives you the following advice on hard money loans.
- Find the right property to invest in
Hard money loans use the property as security and therefore the lenders want to ensure that the property is in a good location and that it is a safe investment.
- Thoroughly understand what you want to invest in by doing research
You need to show some understanding of the property and the location where you are investing. This means you need to do some research in the area, take some pictures, and collect information of other properties in the area and how they sold etc. The more the information you have the better.
- Have an entry and an exit strategy.
Hard money is usually short term money with a maturity period of about 1-2 years. The lender will want to ensure that you will be able to either fully pay for the loan within this period or at least arrange to sell or refinance the property before the time is up.
- Prepare all the necessary personal and financial documentation
You may require producing your personal and financial documents despite the fact that the loan uses the property as collateral. So be prepared for this.
- What is your unique value proposition?
In other words, what unique or special value do you bring to the table? For example, do you have cash in hand, a good credit score, other valuable properties etc. Anything that can sway the decision of the lender towards your application of the loan will be helpful.
After talking to your real estate friend, you realize that the stars have indeed aligned for you and you immediately make an application for the hard loan and make an offer on the house.