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Updated about 9 years ago on . Most recent reply

User Stats

86
Posts
7
Votes
Tuan L.
  • Real Estate Investor
  • Cali
7
Votes |
86
Posts

When to apply for private lender/ hard money lender?

Tuan L.
  • Real Estate Investor
  • Cali
Posted

Hi BP community,

I would like to get some feedback on when you should look for private lender/ hard money lender. Seller/ wholesaler usually ask for POF if you want to get into contract for the property. So if you want to close the deal fast, you need to have cash available. On the other hand, private lender/HML wants to see the deal first before talking money. Ideally, I think you can develop the strong relationship with a few investors that you build trust on and they can provide POF instantly. But when you get started, how should you proceed? Thank you for the feedback!

Most Popular Reply

User Stats

80
Posts
41
Votes
George Krajacic
  • Private Money Lender
  • Buena Park, CA
41
Votes |
80
Posts
George Krajacic
  • Private Money Lender
  • Buena Park, CA
Replied

Hi Tuan,

I think I understand your dilemma. I’ll try to provide some more clarification and hopefully some good answers for your questions.

It's important to know that you won't likely find a lender or investor to give you a proof of funds letter based on trust/a built relationship. But just because you couldn't get POF "instantly", doesn't mean you can't get one in a very short turn around adequately for your seller's needs. But do start talking with lenders before you start looking for properties. It's important to know their terms, costs, and requirements to make the important project analysis.

A private / hard money lender doesn’t need to see a contract first (if that’s what you mean by deal) most of the time. They need to have enough figures to be able to analyze if the proposed deal makes sense. You should already know these numbers if you’ve calculated the maximum amount you could pay for the house and still make a profit.

It’s important to be able to be able to analyze a property like a lender does for two reasons. First, you won’t be in the rehab/flip business if you can’t accurately calculate all your costs to determine your optimistic and pessimistic profit projections. Second, it will help you be relatively certain that the lender will fund the project.

When you analyze a potential flip you must have certain information to decide what offer you are going to make. First, you need to determine After Repair Value (ARV). Then, you have to know how much you going to spend on repair and the time it will take to complete a job. Finally, you have to know what you are going to pay for financing. Only with above information can you determine what is the maximum price you would be willing to pay for the property in order to make acceptable profit.

You can plug the above numbers into a flip calculator. There are many available on the web and here at biggerpockets or I have one available on my website that lets you compare scenarios side by side.

It doesn't take long to analyze a project once you have some practice. Many lenders, including myself, could turn around a POF letter within a day. When you develop a relationship with a private or hard money lender and you are knowledgeable at analyzing deals, I'm sure they would be happy to provide the letter quickly, especially when they know you aren't bringing them a bunch of duds!

Good luck on your projects,

George Krajacic, Cornerstone Company

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