Читать книгу Flipping Houses For Dummies - Ralph R. Roberts - Страница 77

Lots of people have money to invest and are disenchanted with interest rates offered by banks and even the returns on their stocks and bonds. Convince them of your ability to turn a profit from flipping properties, and they just may loan you the capital you need to get started.

Loans from private lenders are often referred to as hard money loans — high-interest loans that typically require an upfront payment and scheduled balloon (lump sum) payments. The property and any future improvements function as collateral for the loan.

The big benefit to hard money loans is that you avoid the hassles associated with traditional bank loans. In fact, you can often qualify for a hard money loan when you can’t qualify for traditional loans. But it’s called hard money for a reason — actually, for several reasons:

 Hard money lenders don’t care as much about your personal income and expenses or your credit score. They want to know that if you default on the loan, they get a property they can sell for 20 to 40 percent or more than what you borrowed.

 As the borrower, you typically pay two to ten points up front — money you’ll never see again — so if you borrow $200,000, you can expect to pay $4,000 to $20,000 up front, just for the privilege of gaining access to cash.

 Private lenders charge much higher interest rates than banks do — sometimes double or triple what banks charge — so if bank loans are at 4 percent, you might be paying a private lender 8 to 12 percent. Private lenders can charge these high rates because they’re loaning money to you as an investment opportunity. If you were living in the property, private lenders couldn’t charge you these rates. Lending at those rates is considered to be usury, which is illegal (unless you’re a major credit card company).

 You have significantly less time to pay off the loan — a few months to a few years, as opposed to traditional mortgage loans with payback periods of 15 to 30 years. If you can’t sell the property or refinance the loan by the deadline, you risk losing the property.

 Hard money typically requires a larger down payment than traditional bank loans — 10 to 20 percent or more — so if the property has a current market value of $200,000, the maximum you can borrow is $160,000 to $180,000. You need to come up with the other $20,000 to $40,000 yourself, along with money to cover holding costs and the costs of repairs and renovations. (See the next section for info about gap loans, which can help you make up the difference.)

 You may be required to make scheduled balloon payments over the term of the loan. Miss a payment, and you risk losing the property.

The approach for persuading a private lender to loan you hard money is the same as the approach for persuading a bank to finance your flips. See the earlier section “Persuading a bank to finance your flips” for details.

You can often locate private lenders via real estate agents and mortgage brokers; by attending landlord meetings or investment seminars; or by joining a real estate investment group and doing a little networking. Most private lenders loan money through mortgage brokers because most states require that lenders be licensed.

Remain cautious of experienced investors, landlords, or real estate gurus who agree to loan you money only so that they can sell you their dontwanners (unprofitable properties they’re trying to unload, see Chapter 6 for more about dontwanners). As a house flipper, you typically look for properties that owners don’t want, but properties that these people don’t want can be real lemons; otherwise, they would probably flip the properties themselves.