Hard Money in California-Los Angeles County

When borrowers are seeking hard money loans from a private investor they should ask themselves the question, if they were the investor would they lend money on their project? What are some of the things that go through a private investor’s mind when considering whether to fund a project or not to fund?

First, the investor will look at the loan-to-value ratios (LTVs) to determine whether they will fund the loan. The LTV may vary by lender and property however, do not expect the maximum LTV to exceed 65% on any type of property where the borrower is seeking a hard money loan. Investors understand that income documentation may be difficult or the credit scores may be challenging or other difficulties that may cause the loan to be denied by traditional lending institutions. However, if the property has plenty of equity and there is sufficient cashflow to repay the loan, an investor will likely be interested in making the loan.

The LTV is not the only test, the investor will want know why the borrower is seeking this type of  loan and the willingness to pay higher interest and fees, as well as, accepting a shorter term to repay the loan. For example, is the loan needed to consolidate debt, save the property from foreclosure, to payoff the original lender or does the borrower need cash for other real estate investments. The borrower should be prepared to answer any questions the investor may have concerning the needs of the borrower.

The investor will want to know if the loan makes sense, such as, what are the monthly rents? Is there sufficient  cashflow to service the loan? If there are vacancies how quick can you get tenants in the units? Are there needed repairs? What is the borrower planning to do with the property short to long term? And finally what is the borrowers exit strategy.

Since a bad credit loan is a temporary solution that will last from 1 to 5 years the investor will want to know your exit strategy.  Ultimately you want to obtain the traditional financing that you were unable to obtain initially. Whatever the reasons you were denied you have sufficient time to correct the problems, whether increasing your credit scores, reducing debt or increasing your level of income,  traditional financing would be preferred in paying off the existing  loan.

If you are ready to get out of the business or sell the apartment or storage units, selling can be a viable exit strategy. If you haven’t repair your credit a subprime loan can a strategy if you can’t get approval for a traditional loan. You will most likely pay higher interest rates but the terms will be more favorable than your current loan. Finally, if all esle fails your last option is to refiance with another hard money lender or the existing lender.

Again, if you view these types of loans from the investors prospective you are likely to have greater success in finding funding for your particular real estate deal.