First-time real estate investors often turn to banks to finance their first purchase because banks offer the cheapest loans.
Getting a mortgage on a rental property from a bank is a bit like running an obstacle course. Applicants jump over increasingly high hurdles when it comes to documentation and eligibility. The process can take months and even after all that rigamarole, your application still gets denied.
Certain borrowers might never qualify when it comes to bank financing:
People with credit issues, or self-employed people without a fixed income. You might want to get into the rental business to improve your financial situation or increase your income, but it is for those same reasons you might never qualify, so where can you turn?
If you are just getting into the rental business, it doesn’t seem likely that you are in touch with a big circle of real estate investors.So you might consider financing your first deal with the help of friends and family members.
“Yeah Uncle Joe, do you have 300,000 you could lend me?”
Well if Uncle Joe just happens to have a cold 300 K in cash lying on his coffee table, you risk many awful Thanksgiving dinners if things go south and you aren’t able to pay him back. Terrible meals that are full of cold stares as everyone chews their food in awkward silence.
But the real disadvantage with getting money from private individuals is that finding people with hundreds of thousands of dollars lying around is not easy.
Given everything we’ve learned, sometimes it helps to make a list of pros and cons.
Bank financing:
• Pro- low-interest rate
• Con- you might never qualify.
Private investors
• Pro- easy to qualify; if a person trusts you they’ll probably give you the money
• Con- you may never find enough money to buy the property in the first place.
What if there was a source of financing that combined the best of both worlds? A place that had the money of a bank, but someplace you could actually qualify?
With hard money, eligibility comes down to the value of the property your borrowing against, your job, your credit and other hold ups from the bank are not an issue. You can qualify.
Also, these people are professional lenders which means, unlike Uncle Joe, they have the money to close your deal. But there is a catch, yes there’s always a catch.
Some claim hard money is too expensive. It is expensive there’s no denying that. But hard money gives first-time rental property owners the money they need to get their foot in the door. The strategy with hard money and rental properties is usually as follows: take out a hard money loan, secure a tenant, get a steady income to improve your credit score and then refinance to a long-term bank loan.
If you rely on a bank to get your first investment loan you might never qualify, if you rely on money from friends and family, you might never get the money needed to close.
With hard money you might actually stand a chance of becoming a real estate investor.
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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