14 Feb INVESTORS’ CORNER: The best seat at the table: Lender
Real Estate transactions have several participants seated at the closing table that are responsible for the success of the deal and that make a profit from the deal. If you were to sit down and figure the hours spent working on the project then divide that by the profit received for each participant, you will find that the lender not only makes the most per hour but they also hold the least amount of risk. Being the bank may not make your friends and associates get goose bumps when they drive by the house you are financing, however, when you measure the risk, time spent working on the project and all that it takes to complete the deal, you will find that being the bank is by far the be best position in any deal.
You may have noticed that the real estate market in the Carolinas in one of the top in the country. With the influx of millennials and our newfound diversification of jobs, we have attracted hundreds of new residents to our state each week. In turn, housing is exploding with new builds and rehabbed homes. These houses are being financed by an unorthodox lender called “hard money’.
What is hard money?
Hard money is a short term, high interest loan that allows a rehabber or builder to buy a house, fix it up and sell it for a profit. Some will knock the house down all together and build new on the “infill lot”.
Many people have money in retirement accounts and unless you are earning at least 8% interest on your money, then you need to consider being the bank. Investors need to borrow money from private lenders because banks will not lend all the money needed to buy and rehab or build based on the after repaired value. Private lenders loan not only the purchase money but will also lend funds to rehab the house. Investors are willing pay premium interest rates because they get the funds they need to fully complete the rehab. The terms are six to nine months long, so paying the higher rates is short lived and make sense to the borrower and lender. Borrowers calculate the higher fees into the deal and still are able to make a tidy profit.
The house serves as the collateral for the loan so a savvy lender will lend no more than 70% of the after repaired value making it easy to get the house sold quickly at a discount and get their money paid back.
Remember, there are risks in every investment you make. Getting involved in your local Real Estate Investor Association such as www.MetrolinaREIA.org is the best way to learn how to make smart moves. To learn more about lending or being the bank, accredited investors can gowww.carolinacapitalreservefund.com or www.carolinahardmoney.com.