Hard Money Loan

What to Do Before Taking Out a Hard Money Loan

June 11, 2020
  • Share On:

Imagine you have been scoping out the local real estate scene and you spot a few promising potentially fix-and-flip properties that have recently entered the market. You begin to picture just how beautiful the properties would look after you work your rehab magic. The question lingering in the background, however, is exactly how do you go about acquiring one of them?  Unfortunately, the real estate game is fast-paced and fickle, so it pays to have the ability to snap up lucrative deals at the drop of a hat. But are you prepared to do so? Here are a few things to keep in mind, especially if you are contemplating obtaining a hard money loan to assist with financing.

 

Pre-Purchase Leg Work

analyze the property

 

The first step is to comprehensively analyze the property. Write down a list of its key characteristics—both positive and negative. Make sure you have the basic details required for loan qualification, including the address, sales price, and good quality pictures of the property (both interior and exterior).

 

Go one step further than just getting to know the property — have a thorough knowledge base of the surrounding community. Doing so will help in determining the value of the property and the potential profit of your flip.

 

Plan, Plan and Plan Some More

 

Systematically lay out your plans for the property. Will you be undertaking a complete overhaul of the structure and adding more square feet, or knocking down walls to open up the floorplan? Or are you just focusing on the aesthetic appeal of the property? Either way, be sure to carefully contemplate the associated costs for all aspects of your renovation and give yourself some financial cushion to account for unanticipated expenses and delays—chances are they will arise, and an ounce of preparation is worth its weight in gold when they do.

 

Crunch the Numbers

 

Virtually any neglected property can be fixed up into a top-dollar, market-ready listing, but to be financially viable from a real estate investment perspective, the price point has to be right. That’s when the After-Repair Value (ARV) comes into play. It is paramount for determining the return on investment of any given project and is the difference between turning a profit or losing your hard-earned money. The ARV formula is fairly straightforward:

 

  • After Repair Value (ARV) = Current Property Value + Added Value from Repairs

 

Comp Check

similar properties in the vicinity

 

You will need to take a close look at similar properties in the vicinity. Focus on ones with comparable characteristics to your project — both in its current state and after rehab. Some key aspects to focus on when checking out the comps are:

 

  • Make sure it is in the neighborhood — the closer the better
  • Try to find properties of identical square footage and property features
  • The more recently the transaction took place, the more valuable the comp is in determining your property’s value

 

The comparable properties resembling the current state of your property can be utilized in determining how much you should initially offer for the property. The post-rehab comps will give you a ballpark sales price for computing your ARV.

 

Walk the Walk, Talk the Talk

 

You will need to leverage your real estate investment experience in building a mutually beneficial relationship with a hard money lender. It is always a good idea to coordinate a face-to-face meeting with your lender (although, in the current global climate, a Zoom call will suffice). Be prepared to provide details on why you think your investment is a good idea and how you plan to make it profitable. Remember: the best hard money lenders want you to achieve your goals as much as you do, and will provide support throughout the process. Give us a call to discuss our Hard Money Loan programs and see how we can help you on the path to success!

 

Button for Learn More about What to Do Before Taking Out a Hard Money Loan

 

What to Do Before Taking Out a Hard Money Loan | Gauntlet Funding – Melville, NY


[contact-form-7 404 "Not Found"]