Tips on Using Hard Money Loans for Real Estate Investments

The greater Los Angeles real estate market offers investors an appealing mix of assets coupled with unlimited value-add opportunities spread throughout the market’s diverse mix of neighborhoods. The Southern California real estate market provides solid fundamentals, including a relatively young and educated workforce, a diverse employment base, and the largest economy in the United States. 

RTI Bridge Loans has funded commercial real estate projects in the greater Los Angeles area since 2004, with a focus on opportunistic and value-add transactions with urgent closing timelines. As commercial real estate transaction volume in Southern California reaches an all-time high, and traditional lending institutions remain cautious around capital improvement projects, real estate Investments need a reliable and experienced capital provider to fill the gap.

So what can borrowers in Los Angeles do to present themselves as qualified for hard money loans? And what are the best recommendations for using hard money loans for property investment? But first of all, what are hard money loans, and how do they work?

What are Hard Money Loans?

Hard money loans for Los Angeles real estate are short-term non-conforming loans often used in real estate investing. Since you use the value of your property as collateral, your credit score may not even factor in your loan approval.

How do Hard Money Loans Work?

With hard money loans, the hard money lenders approve your loan request based on the value of the property you want to purchase. 

While the lender may do a quick check of your credit or finances, the process will be much smoother than it is with conventional lending institutions such as banks. Los Angeles real estate investors often use hard money loans to purchase or renovate investment properties, such as fix and flips.

Why Use a Hard Money Loan?

The main reason why you should consider hard money loans for property investment in Los Angeles is that you can generally obtain hard money loans for Los Angeles projects quicker and with less stringent requirements than traditional loans. It allows real estate Investments to receive fast funding and comes with more flexibility – so you can achieve your financial goals in no time. 

The Qualities Hard Money Lenders Look For

      1. Articulate Your Relevant Experience

Experience in real estate transactions reduces risk to the lender; therefore, a borrower with a record of successful real estate transactions has an advantage in securing new financing compared to beginners. 

Don’t worry if you have less experience, as you can make up for this by assembling a team of experts bringing their relevant experiences.

      2. Sound Investment Strategy and Clear Exit Strategy 

The investment strategy outlines the project as a core, value-add, or even opportunistic in nature. It needs to be viable and sensible as it relates to the acquisition or refinance.

      3. Strong Liquidity

Liquidity is necessary to close the real estate loan as it allows you to cover the down payment and closing costs. It also serves as a cushion.

While the cash flow from your investment property will likely cover the mortgage under normal circumstances, strong borrower liquidity would prevent the mortgage from defaulting if the cash flow was to decrease.

Four Tips for Financing Investment Properties With Hard Money Loans

Ensure You Have the Correct Documentation

The principal requirement for getting a hard money loan in Los Angeles is possessing a specified amount of equity in a particular property to use as collateral for the loan. However, that doesn’t mean that hard money lenders don’t want additional information about you and the property you wish to purchase.

The most common documents needed to close a hard money loan include:

  • Purchase contract
  • Preliminary Title Report
  • Two Forms of Identification
  • Proof of funds statement
  • Proof of Insurance

Choose the Right Property

Hard money loans aim to help you get a property ready to go on the market as quickly as possible. Therefore, it is critical that you first perform a local market analysis and have a clear idea of how soon the investment will become profitable.

House flippers often encounter unexpected issues once their renovations get underway. If that happens, you want to make sure that your hard money lender can provide you with the option to extend.

Establish a Good relationship With the Lender

When building a relationship with hard money lenders, it’s important to keep long-term goals in mind alongside your short-term financing needs. 

Good lenders want to work with borrowers who are easy to work with, just as borrowers want to work with lenders they can trust to offer them competitive terms.

Don’t Be Afraid to Ask Questions

The real estate world is full of industry-specific jargon and financial terms that can take years to grasp fully. While this in itself sounds intimidating, when you realize that you would lose money by making a wrong decision, you realize just how stressful real estate investing can be. 

So, what’s the best way to put yourself at ease and make your first hard money loan go as smoothly as possible? It’s simple. Ask hard money lenders as many questions as possible when applying for a loan. 

Never be afraid to ask questions – It may be what saves your business. 

We hope you found this blog post on Tips on Using Hard Money Loans for Real Estate Investments useful. Be sure to check out our post on How You Can Invest In Real Estate With Little Or No Cash for more great tips!


Tips on Using Hard Money Loans for Real Estate Investments

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