1.) Find The Right Project!
Because Hard Money loans are collateralized by the subject property itself, it’s very important that you choose a project that matches your experience and financial capabilities. Lenders will consider the property and also the location. They use the info to determine the value, both current and future.
2.) Have A Great Exit Strategy
Since hard money loans are short term solutions, (6-24 mos) they require that the borrower have a good exit: possibly rehabbing the property and re-selling it on the market for a profit to repay the loan, or plan to refinance the loan the pay it off..If you can’t present a solid exit, don’t bother applying for a loan. You’re wasting the lender’s time and your own.
Credit report– It’s better to know your credit profile ahead of time, know about and be prepared to disclose judgments, liens, unpaid recent mortgage lates or late bills that are recent, these are red flags.
LLCs or Corps- Have the complete Corp docs available for review.
Rehab bid – Contact a reputable contractor, ask someone for a referral. Then have them prepare a bid in writing. I’d try to have two or three in a perfect world. This has to make sense, it has to be realistic in terms of amount of rehab needed to achieve equity..For example, if you are attempting to flip a multi-million dollar property, but your bid is for $45k…and you are projecting making $800k+ in equity…This raises eyebrows! It’s normal and accepted to get multiple contractor bids, and get 3 very different bids from 3 very different contractors! That will happen, just submit all 3 bids to your lender.
Appraisal – This may not be popular, however paying for a good ARV appraisal ahead of time, may save you weeks of waiting only to be disappointed that the value won’t be there. If you prefer not to do this, you can play your luck with a CMA from your trusted real estate agent.
Biography/History of Flips – Trust Deed Investors are regular people. They need to “know” their borrowers as best as possible before deciding to loan thousands of their hard-earned money into an unknown person or entity. Sure they get a deed of trust but don’t mistake, they don’t want to spend any time foreclosing on people..
They make money passively, so if you want their money, get ready to complete for it!
Prepare a bio that highlights your history of Flips, including acquisition cost, rehab and final selling price… This is where you shine! ( or maybe you realize that you are not a good candidate for a loan)
Maybe you should find a partner with a better track record to team with one the first few deals.
Asset Documentation – Lenders will want to see IRAs, Recent Personal and/or Business Bank Statements.. (please don’t have negative in your account, this will not work in your favor) Recent valid ID with SS card or 1099 with your SS on it.
RPA/ Purchase Contract – There is no point coming to lender for a pre-approval without a live deal, defined as: with a contract being negotiated or signed and executed. Hard Money lenders issue approvals based on the asset and qualifications of the borrowers. Without a deal, they can’t do anything. Make sure that you indicate that you will be using private funding or hard money. Don’t say cash, you’ll have to get an addendum to change that later, and can be a pain.
4.) Perform on Your End
If you are trying to get a lender to take you seriously, you have to be interested and proactive. They prefer for you to be quick about providing info when asked and supplying documentation as requested. And after the lender has collected a complete package, he will offer you loan terms, they expect you to take them! Shopping loans will get you a bad reputation quickly. The lender circle is small.
After you have collected this package, now you’re ready to get an ARV Fix and Flip loan!