Would you use Hard Money to begin REI?

Question

With a hunger to start going in real estate, would anyone recommend using hard money lenders as a means of gathering capital for first flip. Without my own capital on hand, it seems that getting in REI is extremely difficult.

Any advice. Also, what are some RE groups in the Milwaukee, WI area to attend.

Marcus Auerbach · Answer

Agree with Mitch, private money would be my first option, hard money usually requires a track record of success or if you are new comes at a very steep price. Hard money can be a great option and help you scale once you know what you are doing.

Before money comes into play invest (time) in education and personal growth. Your level of success will seldom exceed your level of personal growth. If you grow as a person, success becomes almost unavoidable.

At my firm they call that BE. DO. HAVE. and it translates very well into the REI world - you first have to BE and think like a successful investor, then DO what a successful investor does (every day, not just a few times) and then you will inevedebly HAVE the same results.

I'd caution you to start with money. I have seen people invest and loose an entire inheritence in REI. It's like a chainsaw in the hands of a toddler. Not having money makes you work harder and think harder and learn harder; if you have money when you start REI can seem easy and as you know - a fool and their money will soon be parted.

Mitch Ferraro · Answer

Hey @Damon James! Hard money is definitely an option but one of the best options, in my opinion, is to raise private money for your real estate deals. Raising private money all starts with a mindset shift and understanding how to use your already existing network. Many people will say they don't know people with money but going to networking events, meetups, and REIAs will help you start building that network and that would be step one. Second step to raising private money is actually finding a TRUE DEAL. To get a TRUE DEAL you have to understand how to analyze properties. Once you analyze properties correctly you can start making offers, at the right price, on properties that turn into TRUE DEALS.

There's actually a REIA event in Milwaukee tomorrow night at 6pm at the Embassy Suites in Brookfield. There is also one down in Kenosha every second Thursday of the month at 7pm at the Birchwood Grill. All great places to start connecting with other investors and start building your network. Hope that helps and let me know if you have any other questions. :)

Corina Eufinger · Answer

Yes, I would have if I needed.  When I was in Iowa last fall I met an acquaintance who has used hard money for their first 3 rental purchases.  Each loan was 18 months in length during which time they were fixing up the properties, renting them out.  Doing this gave them equity in the duplexes for refinance and on the 6 unit being rehabbed and rented made it more attractive for a commercial lender to ok.

You have to watch your interest rates and terms. Hard money isn't regulated and some lenders are more payday loan than a reasonable substitute for private money and traditional financing. (Interests rates will be a little higher but some can be down right extortion level.)

Kevin Whisler · Answer

Hey Damon, our company waited about a year to use hard money. Simply because we needed to show them a couple of flips we did in order to get approved. If you don't have a lot of capital you should look into wholesaling. You can find 1-2 page wholesaling contracts online, typically do a $500 deposit and a due diligence period of 5-10 days to give you time to flip it to an investor. You're also going to have to network with local investors all over your city and find out what they like. Wholesaling is super challenging at first but it will help you learn your market inside and out.

Damon James · Answer

Thanks everyone! Great insight and perspective.

Cory D Miller · Answer

Great insight Marcus.

Rebecca Knox · Answer

If you use hard money, you still have to have some funds plus typically, they are going to look at experience as well. You could wholesale or wholetail to get some experience and funds too....so many possibilities; that's what I love about real estate besides meeting some truly wonderful people. Definitely know what you are doing before borrowing other people's money and have paperwork in order as we unfortunately are in a business just like any other where people can be unscrupulous and handshake agreements and too much trust on either side can lead to disappointment

You are welcome to come to Brew City REI Club's free event this Thursday at 5pm at Freight38.  It's a great chance to network with many active, local real estate investment strategists.

Caleb Jordan · Answer

I would consider using hard money. Obviously the deal has to make sense and you want a property that you can fix up and sell quickly.

You can also partner with multiple people in one hard money loan to pool resources together.

Damon James · Answer

@Jose Castillo I have. Is there any references you have to do more research on regarding wholesaling

Jose Castillo · Answer

@Damon James you will need funds to carry the loan. Have you heard of wholesaling?

Would you use Hard Money to begin REI?

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