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Monday, December 10, 2018

WHAT IS PRIVATE MONEY LENDING?

Private money lending in Arizona is when a private individual or organization lends money to a company or individual. This type of lending does not adhere to traditional qualifying guidelines, as banks must do.

Everyone is familiar with what a mortgage is—when a bank lends money to purchase a property or for renovations of a property. But, where does an individual go when a traditional mortgage won’t work for them? Many times borrowers are denied a conventional loan because of their credit worthiness or income. Other times the borrower may not have the time to wait, sometimes months, for approval from the bank.

WHY USE PRIVATE MONEY LENDING?

Because these loans are funded by private investors versus traditional banks-they are referred to as ‘private money loans.’ The loans are based almost exclusively on the value of the property instead of the borrower’s credit worthiness or financial history. The loan amount is determined by the loan-to-value ratio (LTV). There are many reason when a private money loan is the better alternative.

* You don’t have enough private financing from friends and family.

* Your credit score is not high enough and your financial history doesn’t meet traditional lender requirements.

* You have a property investment opportunity and don’t have the time to go through the lengthy bank loan process.

* You want to fix and flip and need quick access to funding.

Although Private money lending in Arizona does not have the

strict guidelines as traditional lenders, there are still requirements.

Private money lenders are concerned with the value of the property that will serve as the collateral more than your credit. However, individual terms will depend on the lender you work with and your unique situation. Most private money lenders only work in certain geographic areas—so, look for a local lender. Your interest rate will depend on your experience. As you gain experience, your lender may offer lower rates—find a lender you like and stick with them. Property type makes a difference, as well— is this a condo, duplex, single family residence). And, your business plan—along with a scope of work and insurance information— will add into the equation of your terms. As with traditional banks, private money lenders do have an underwriting process. Fortunately, this process is much faster than a traditional bank’s underwriting process. It doesn’t take long to be approved and receive your funds due to the speed of the underwriting process. After pre-approval the private money lender will order an appraisal of the property. As long as the property meets lender criteria the money will be dispersed for the property. Private money lending in Arizona is quick and helpful. It is beneficial for borrowers to work with either a local lender or a lender that is familiar and comfortable with the geographic area you are looking to purchase your property. Private money lenders build on relationship—the more you work with your lender, the more money you will both make.

Dennis Dahlber Broker Ri CEO Level 4 Funding LLC Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

EVERYTHING YOU NEED TO KNOW ABOUT ARIZONA HARD MONEY LOAN

A Arizona Hard Money Loan is an option for real estate investors when traditional lenders don’t work for their situation. Instead of using your credit score and income to base approval for a loan—they use property as a hard asset and use that property as collateral.

A Arizona Hard Money Loan is simply an asset-based loan. As you know, the most significant factor affecting loan approvals is FICO scores. Lenders want borrowers that have shown a solid payment history because this shows their ability to repay the loan.

Hard money lenders use a different approach to lending—they base it almost solely on collateral. Because of this they place less concern on an applicant's credit history. Why? Because if the borrower defaults they can foreclose on the property, sell it and generally still make a profit.

HOW ARIZONA HARD MONEY LOAN WORK

Arizona Hard Money Loans aren’t necessarily for everyone, but there are many situations where these loans are beneficial to the borrower. One scenario is starting out flipping houses—you probably wouldn’t have enough money to buy the property with cash. This is an example of a time a Arizona Hard Money Loan would make sense.

Typically, Arizona Hard Money Loans are very short-term loans ranging from six to twelve months—however, they are known to be extended out up to five years depending on the situation. These loans are generally have higher interest rates than conventional loans—hence, investors don’t want their loans for a long period of time.

A plus with a Arizona Hard Money Loan is how quickly the loan process takes. These loans can close in a matter of only a few days—and it is a rare occurrence that the process takes longer than two weeks. Arizona Hard Money Loans allow investors opportunity to purchase more properties with less upfront capital—which means a larger profit.

Arizona Hard Money Loans are very different than a traditional loan. They offer much greater leverage to the investor and they finance deals much quicker than traditional loans. Because hard money lenders are not as concerned with the borrower’s financial situation there isn’t the amount of paperwork and the long waiting period as there is with a bank. Because hard money lenders make their own rules and regulations, unlike banks, there is more flexibility with their loans. Although, they do have underwriting it is a much simpler process than conventional mortgage underwriting. Approval is based on the value of the property—and although they will look at your credit history and finances they are still able to finance a loan based on hard-assets.

You are able to get many different loans from a hard money lender.

Bridge loans, construction loans in Arizona and Arizona FIX AND FLIP LOANs are only a select few of the many loan options hard money lenders can provide. Generally speaking, borrowers can obtain a Arizona Hard Money Loan for any property— airbnb, single-family residence and the list goes on. Find yourself a property and then find yourself a local hard money lender.

FIVE BENEFITS OF ARIZONA HARD MONEY LENDING

When you find an opportunity for a good real estate investment—you need help financing the property. There are many reasons that traditional funding is not the best option—such as slow approval and financing, strict term regulations and tons of paper work.

In a competitive market you need quick reliable financing. Without it you can easily lose your deal. Sellers feel confident working with borrowers financed through a hard money lender because they know the funds will be readily available and the deal will go through.

WHY USE ARIZONA HARD MONEY LENDING?

1. Flexible Loan Terms— Bank lending guidelines are extremely strict and rigid. Basically, all loans have the same terms other than a small fluctuation of interest rates. Arizona Hard Money Loans are not “one size fits all.” Each property is different, as is each borrower, and Arizona Hard Money Loans reflect that diversity.

2. Fast Funding— A traditional bank can take months to process an approval. When an investor falls into an opportunity where they need immediate funding. Hard money lenders are in the same professional arena as investors and they understand the need for speed. Hard money lenders can have your money to you in less than two weeks.

3. Less Required Documentation—Before issuing a loan, banks require a plethora of paperwork. This paperwork takes time—usually, a borrower will have to resend the same documentation more than once. All this paperwork is a hassle. Hard money lenders don’t need to know every detail of your financial life. They only need to know what qualified collateral you have. Their concern is not your credit or your employment history—because it is asset-based.

4. Less Papers To Sign— You will not have the piles of papers to sign with a hard money lender as you do with a bank. Signing your name hundreds of times is tedious and a gigantic time waster. All this signing slows the process down. With ARIZONA HARD MONEY LENDING you won’t have a fraction of the amount of paperwork. You will get your money faster and be headache free.

5. No Hidden Fees—When you are signing your life away at a bank, you get to a point where you aren’t 100% sure what you are signing anymore because you just want it to be over. While you are signing your John Hancock—you are agreeing to hidden fees. The bank officials are conditioned to nonchalantly go over these fees with you and superficially explain what they mean. Once you sign on the line you are committed to pay—even though you didn’t really understand what you were signing. Hard money lenders will have your repayment plan laid out for you with simple terms—there isn’t enough paper work to slide in hidden fees.

When you work with a hard money lender it is straight forward and quick. They want you to succeed as much as you want to succeed. It is always a win-win.

Overwhelming amounts of paper work and looking deep into your financial life can cause a borrower some heavy anxiety. Hard money lenders will make the lending process as painless as possible.

ON RENTAL PROPERTY LOANS IN ARIZONA

It’s a lot harder these days to get financing on an investment property.

Approval for financing is much more difficult if you don’t have excellent credit and a viable, sufficient monthly income—lenders welcome those borrowers with open arms, but what about the rest of us?

When you borrow for a rental property it is called non-owner occupant financing. If you are planning on purchasing a rental investment there are various options. If you are working with the right lender—they can help you strategize both a short-term and long-term plan to ensure you keep your finances straight. Getting a mortgage for an investment property loans in Arizona can be tricky.

WHICH TYPE OF RENTAL PROPERTY LOAN IN ARIZONA IS BEST FOR YOU?

Buying as a Straight Rental Property— This will be a conventional loan from a bank. You will be applying to buy an investment property. You will be required to put down at least 20% of the purchase price for a down payment—plus closing costs and costs for renovations. You will also need at least a 720 FICO score, a strong cash reserve and a healthy monthly income.

Buying as a personal residence— This will also be a conventional loan, but you will be buying it as your home. You are allowed to buy a home and reside in it for 12 months—then, rent it out. Because it will be purchased as a personal residence you are qualified for an FHA loan. With FHA financing you can put down as little as 3.5%. The terms of the rental don’t change when you move out and your tenant moves in. This is a good option for a borrower who doesn’t intend to buy multiple properties.

Hard Money Loan— A hard money loan is an option if you either want to buy an investment property loans in Arizona and continue to live in your own home or you want to purchase multiple rentals. These loans are financed by private money investors and aren’t required to follow the strict guidelines set by Fannie Mae and Freddie Mac. Because they offer such flexibility, residential Arizona Hard Money Loans are used by many types of investors. These loans have fast approval and borrowers receive funds within two weeks. This speedy process is also helpful in a competitive housing market. Banks can take months to produce funding—all the while, investors lose their potential property. Borrowers who have been through foreclosure, bankruptcy or have poor credit can still qualify for a residential hard money loan.

It is important that you educate yourself on rental property before becoming a landlord.

Investing in rental property is not always easy, but if you start early—you can have a nice rental property income stream.

THE DIFFERENCES IN LOANS TO FLIP HOUSES

It’s getting a reputation as the quickest way to become a millionaire—flipping houses. The first step is making sure you get financed.

It is possible, and not that uncommon, to flip houses with no money down. These loans are referred to as Arizona FIX AND FLIP LOANs. There are a few different methods when financing a house flip.

The more houses you flip at a time, the more money you make—common sense, right? But, who has the cash reserve to do one deal at a time let alone multiple deals. This type of stress can limit your deals. Every borrower searches for the lowest interest rate. But, time is what a house flipper should be focused on. Conventional lenders tend to shy away from house flipping and that makes perfect sense. You already have a primary residency and then you ask for a second mortgage—the bank knows you won’t be living in two places at one time. If you have to default on a loan, it’s definitely going to be the house you are flipping before your home. This is where a borrower needs to learn about different loans to flip houses.

WHAT LOANS ARE AVAILABLE TO FLIP HOUSES?

Home Equity Line of Credit— This is not overly common when it comes to house flippers and isn’t recommended as the first strategy you take—but, it is a possibility and one to investigate. The interest rate will attract borrowers. The downside— they are highly risky and if you don’t follow the strict guidelines and requirements you could find yourself in a heap of trouble.

Retirement Account/401K— This is a possibility because it is money you already have. So, why not just use it? For starters these accounts are taxed heavily for early withdraw and you will accrue several punitive fees. Also, that is your future and do you really want to bet your future on a house? This is best suited for experienced house flippers. If you choose to go this route make sure you have the help of a financial professional.

Arizona Hard Money Loans—These loans work for first time flippers and veteran flippers alike. They are short-term loans—typically, between six months and three years. However, because these are financed through private money lenders they don’t have to follow the Fannie Mae Freddie Mac guidelines. They have much more flexibility when it comes to loan terms. As with all loans—there are pros and cons. The con with a hard money loan is the interest. They vary from 7%-15%. And, although that may seem a little steep—keep in mind that these loans are interest only payments until the end of the loan. At the end of the loan the payment is due in full. Since the point of flipping a house is to get the rehab done as soon as possible and sell the property these loans work out for both the borrower and lender. Another benefit to Arizona Hard Money Loans is most lenders do not impose early payment penalties.

Looking at multiple possibilities, when it comes to funding for your project,

should be your goal. Not every loan is beneficial for every borrower.

However, for a newbie house flipper that doesn’t have high cash reserves looking into hard money funding is definitely your best bet. Find a local lender that is experienced in flipping houses, ask questions and make sure you ask about extra fees and any possible penalties.

DREAMS COME TRUE WITH AIRBNB HOSTING

Are you looking for extra income, but idon’thave a lot of extra time? Being an airbnb host could potentially add thousands a month of extra revenue in your bank.

The average airbnb host earns close to $1,000 a month. You have to remember that is just the average. There are hosts out there making over $5,000 a month, as well. It all depends on what you are renting out. For example, a spare bedroom in your house may only make you three or four hundred a month. Some hosts rent out their guest house—that makes a little more money. The big money is in apartments and houses; and if you are in the right city that only adds to your profit.

However, before any of that money comes streaming into your pocket you have to find a loan. And, that is where the tricky part comes in. Banks are uneasy lending money for a rental home. It makes sense—if a borrower is going to default, it is going to be their vacation home before their primary residency. The problem with a rental is it can be vacant at times and the bank needs to feel confident that the borrower can pay two mortgages at one time—even without the extra income.

WHERE TO GET AN AIRBNB LOAN IN ARIZONA

Buying a property to rent out as an airbnb is more than just the property itself. There are various costs that are included when becoming an airbnb host. First, realize that if you rent out the home for more than 14 days you have to report it as extra income on your taxes. Secondly, there are supplies that you will need for your rental—such as cleaning supplies, bedding, dishes and furniture just to name a few. You will also need deep cleaning done after your guests leave. Many hosts tack a cleaning fee to cover a professional cleaning company to handle that. You will also need insurance. Airbnb offers insurance but it is only basic liability and property protection—you may need or want more coverage. Airbnb charges a flat 3% commission to cover the cost of processing payments. These are all things that need to be considered

Hard money lenders offer airbnb loans. These are short-term loans that a borrower can take out and can later transition into a conventional loan. These loan terms are typically six months to three years, but occasionally can be extended out for five years. The beauty of a hard money loan is the lender doesn’t base approval on your monthly income or your credit score—it is based on collateral. These loans are backed by the property. This gives the lender security. If the borrower defaults they can foreclose on the property. This gives the borrower sufficient time to make a consistent yearly income on the property, which is what will approve them for a conventional mortgage.

A lot goes into purchasing a vacation rental property.

It is important to sit down with your tax specialist to see how this will affect you. Look at other airbnbs in your area; how are they doing? Find a lender and discuss what a loan will look like for you. In the end, you will have a hefty profit as an airbnb host.