The California Realty Market and other Californian-based reports all unanimously point to the same conclusion: The Californian local market is about to become even more unaffordable making it a splendid opportunity – somewhat like an ice-cream parlour for hard money lenders who can dip into their own pockets for the funds and dole out this ice cream – or loans – to investors who are otherwise unable to get them from regular sources.
California has many hard money lenders – I saw 149 listings on one directory alone – and they dole out all sorts of loans: commercial, residential, business, so-called Social Crowd loans, simple, and so forth. FICO score and credit history are insignificant. If your property promises profit, that is all that the lender is interested in. Show him, or her, that you can repay your loan. Persuade him that your property – even if he has to sell it – will repay him double or triple his investment, and you may find yourself with the needed funds by the end of the day.
The problem is that these unconventional lenders can ask for higher interest rates – after all they’re handing over their own funds. You also get comparatively little scoop for your collateral. But there are advantages that may tilt the spoon in your balance. These include faster scoopings and a simpler procedure – relatively few forms to fill out. The entire process can conclude within the week – compare to the 60+ days of the bank! Getting the hard money loan is almost as fast as a handshake. It’s up to you to decide.
What makes people want to approach hard money lenders in California?
Right now, the local housing is about to become even more unaffordable. A UCLA economic forecast released this week (December 7, 2105) showed that housing in California — already considered unaffordable to many — will become even less affordable over the next two years, with construction unable to keep up with demand. For potential investors, this news is both good and bad. Good in that it means that investors have a ready market to flip and sell to. Bad in that investors somehow need to find the money to buy cheap property, convert it, and sell this property at a profitable price. Many potential borrowers may be unable to afford the cost of buying plunked-down dollar-low realty. They may be less able to afford its inevitable dizzy costs of renovation. Many approach banks or other traditional lending institutions but are increasingly turned down. Even if you have a reasonably trustworthy credit history, banks are too frightened to take the risk. They particularly shy away from prospects of lengthy renovation. If you live in California, this where hard money lenders may be the answer to your prayers. The lender looks at the value of your collateral and, based upon that, may hand you the needed funds. You may want to factor in higher prepayment and interest rates as well as that dismal expectation that you will have to hand this generous lender your property if you default.
How do I know which hard money lender to choose?
Look at any random online lists of hard money lenders in California and you’ll see a potpourri of companies or individuals all ready to loan out funds.
Funds vary – you’ll find options for commercial, residential, rehab, simple, business, non-owner occupied residences, so-called social crowd loans, and so forth. Loans exist for any situation that you need one. Some also loan for non-profits which include churches.
Fund amounts vary too. At the times of this writing, the median offer is $1,500,000 with packages ranging from $20,000 to $20,000,000.
You may want to keep in mind that the higher your loan, the higher your repayment (interest included).
Then there is the loan-to-value ratio (LTV) which means the extent to which the percentage of the given loan will match the value of your property. Hard money lenders are notorious for offering low LTVs usually in the 50-60% range – but if you look around you’ll find some who offer unexpectedly high LTVs. You may even find someone who offers 100% LTV. The advantage with a California glutted hard money lending market is that each lender tries to outbid the other. This works well for you in that you can shop around and negotiate. (The more limited markets are less reasonable since they know that they are your last choice).
Since lenders fund from their own pockets, each tends to set his or her own schedule and terms. This is something else that you may want to keep in mind. You may want to set aside some time for earnest research and ‘shopping’.
Anything else to look for?
You’ll want to find a qualified hard money lender who is certified by a local Californian agency as well as by the National Mortgage Licensing System (NMLS). Others may hold licenses from the Department of Corporations or the Department of Real Estate; all are equally valid. Check experience, professionalism (look at their websites: are the guidelines consistent and clear?); review their credentials and check online reviews. You’ll also want to hire a lender who is transparent – he or she explains procedures clearly to you and shows you his calculations. Finally, you’ll want smooth and fast execution, a high LTV (the higher the better since it shows that the lender has enough ‘skin in the game’), and favorable rates and terms. legal moneylender