L.A.C.K. – LIQUIDITY, ASSETS, CREDIT, AND KNOWLEDGE - HARD MONEY

WHY SHOULD I GET QUALIFIED FOR HARD MONEY AS A BUYER?

Imagine for a moment that you have saved $50k of your hard-earned money and you’re trying to put it to work with property in Houston. You begin looking at listings and then finally, after hours of analysis, you come across a gem of a deal with a $100k asking price that you think will be excellent for you to at least go look at. You do your walk-through of the property and the repairs required are going to be a piece of cake because you’ve already networked and found a decent contractor that has joined your all-star team of professionals. You know ahead of time that your credit is good and you have a decent down payment ready to go so you want to take the next step and pull out the contract. The seller signs your contract and it’s executed; you’re ecstatic and you turn it over to the title company to start running title research. In the meantime, you know you’ve got to get your ducks in a row and make sure that the financing is in place so you’ll have no problems with closing. You reach out to your list of hard money lenders in Houston and start getting pre-qualified and researching your options to see what the best terms are out there that you can take advantage of… and BOOM.

Your qualification and loan are denied. It turns out that a) you don’t have the cash liquidity that the lender requires, b) your credit isn’t as good as you thought, c) you don’t have enough experience or a good enough track record for a lender to make a bet on your success, d) you are unaware that the typical hard money lender will only loan up to 70% of the property’s after repair value (ARV) (There are different loan products with different % requirements out there), e) the lender wants that great deal for himself and doesn’t want to loan to you. There may be a dozen reasons you and/or the property won’t qualify for the loan. You’ve spent hours of your time finding that deal of the decade and someone else is going to take it from you because you didn’t even know that you couldn’t qualify for the loan. You would be surprised how often investors are disappointed to find themselves in one of those exact situations. I had a Mr. Xyz tell me recently that his lender told him he had up to $700k to lend to him. However, Xyz couldn’t qualify for the loan product he wanted because he didn’t have enough cash liquidity on hand. Needless to say, he was very upset to miss out on a deal that he felt was perfect for him because he didn’t know enough about hard money and didn’t have his ducks in a row to liquidate a portion of the sizeable non-liquid assets he did possess.

If you live in Houston, TX, you know that it takes anywhere from 45 minutes to an hour and a half to get from Point A to Point B. If you want to go see a property deal in Houston, there’s a good chance you’re going to burn at least 3 hours going to look at it. You will have probably already spent a sizeable amount of time getting to that point to decide if you event want to go do that walk-through. Then, including the hours of driving, you’ll do your walk-through that may take you an additional hour depending on your experience level. You may spend a lot of time negotiating with the seller as well as performing your inspection for the rehab planning. Then if you actually want the deal, you may go back and spend additional time pondering all of the things you’d like to do with the rehab, what the best exit strategy for that deal is, and spend additional time talking to your contractor about the different options available. I know there are many people reading this that have experience and won’t need that much time to make a decision and this message doesn’t apply to you. Regardless of your experience, you need to know beforehand where you stand with the multiple lenders and lending options available. Time is money… for you as well as everyone else that you’re depending on so don’t waste a whole bunch of your time getting to the finish line and not be 100% certain that the financing will be there.

Fortunately, there is a very simple solution to this and it’s called the “pre-qual”. Virtually all hard money lenders have a process where they can ask you some questions about your current cash liquidity and asset situation, collect some bank statements, and ask you about your credit history to pre-qualify you without even pulling your credit. Some lenders can do this in as little as 30 seconds. When this is completed, you will end up with a very good snapshot of where you stand and what price point you can take on for your next project. You’ll also have established the beginnings of a valuable relationship with a lender who can help you navigate the headaches and paperwork of ensuring your success, as well as networking with a professional who may be able to help you find other deals! Do not go to look at houses until you get an MVP investing team established; they can kick open doors for you and present opportunities to you that you didn’t even know existed! In addition, you not only will have peace of mind, you will be in a better position psychologically when you know that your ducks are in a row. You will be able to exude the confidence required that just may tip the scales in your favor over other buyers competing for the same property.

In conclusion, don’t let your L.A.C.K. get in the way of your success, especially if you haven’t done that many deals yet. a) The knowledge and empowerment are readily available, b) it is too easy and fast not to get this knocked out, c) the seller and the rest of your team will be confident in your ability to complete the transaction, d) you will be an investor more professionals will want to work with, e) you will have more deals brought to you because people will know that you’re the proactive go-getter that they want to work with. That success will snowball and feed itself and you’re one step closer to the next million dollar paycheck! Mission Accomplished!