Common hurdles for hard money borrowers

Lender capital for real estate investment, especially in major urban areas, is at an all-time high since the mortgage crisis in 2008. There are more private lenders in the marketplace now than there were 15 years ago, and this means that as a borrower it is your responsibility to understand what each different money source brings to the table as both a positive and a negative. Scrutinizing a lender is an important aspect of successfully getting an investment deal done, and the first key point that a potential borrower needs to understand is that the lender will be scrutinizing the borrower even harder in return. When planning your loan application or proposal for the purpose of acquiring an investment property, here are a few things in your own file you need to be prepared to answer for successfully in order to be approved:

  1. Less than stellar borrowing history: Many borrowers often have unrealistic ideas about their negative credit history and the ways it can impact their ability to secure a loan. The first thing we often do with clients is to paint a realistic picture of the deal structure they can likely be approved for and strategize based around that. People who have inflated expectations often see their aspirations fade in the real estate investing business sooner than later, so having a partner on your side to tamper those ideas is a huge benefit.
  2. Little to no equity: Lenders like to provide financing to developers with skin in the game. It's all about risk mitigation and it's a method that works. When you borrow 90% of a project, you're only assuming 1/10th of the risk in real assets. That's a big deal and something that all lenders will well understand. The more a borrower is willing to put into a deal, the greater the odds of lender approval will be. 
  3. Successful project track record: A major boost to prospective borrowers is their ability to provide a history of successful deals completed or properties managed to a lender as a testament to their ability to successfully complete deals and pay back loans. This is telling, as a lender willing to grant a loan to a new borrower will most likely be taking higher fees and a higher interest rate. 
  4. Property potential: Because a hard money or private lender is typically lending solely on the title of the property in question, the property involved in the deal is often the most important aspect in their eyes. A borrower with a contract on a fantastic property but with a poor financial situation is often still able to find money based solely on the potential of the deal. This is not always a positive, it is important to note that many lenders will lend with the intention of eventually owning the property via default or foreclosure. It is key that you're able to discern between the good lenders and the predatory ones.

At CMG we handle these types of deals for clients often and are well versed in the ins and outs of hard money. We'd be happy to give you a consultation on your proposed loan. Reach out today and we will ensure you get the best deal possible.