When it comes to searching for a hard money loan, you have two options: 1) you could go with a national lender with headquarters located in various areas across the nation, or 2) you could opt for a local lender based in your area. Do you know which option you would best benefit from? We can help you decide.
When dealing with a local lender, there are several benefits you’ll receive that are not possible with a national lender. From faster closings to connecting you with local companies/vendors, working with a locally-based lender can benefit your project in multiple ways. Read on to learn more.
Easier Communication and Coordination
Working with a local lender makes it much easier to communicate. If you have a question, or want to get some advice from your loan officer, you don’t have to wind your way through a maze of 1-800 numbers and touch-tone menus just to talk to a person. When you choose us as your private lender, you will receive our personal office numbers that we answer at all times. Our office is centrally located in the Washington DC Metro area so we are only a short drive away from your property. We can visit your properties on the same day any issues arise or you need to close quickly. As opposed to national lenders that would have to make arrangements days in advance due to being out of state.
Knowledge of Local Market
At Washington Capital Partners, we have extensive industry experience and we have completed renovations of our own. As expert hard money lenders in the D.C. metro area, we have seen a multitude of deals across the area. We close several deals per day in D.C., Maryland and Virginia, so we know the market inside and out. We live and breathe our market every day, and we have the ability to tell you exactly what will sell here because we fully understand your reality in the current market. On the other hand, national lenders may just put money into the property without providing any insight or value to your project. So you may be wondering, why does it matter if my lender knows anything about the local market? If they agree to lend the money I need, why does local knowledge matter? If your lender is not familiar with the market you are building in, you could be wading into dangerous waters because they may provide you with more or less funds than you need for the project. If your lender gives you more money than your project requires, you will have higher financing costs. But if they don’t provide you with enough funds, you will not be able to complete your deal. Do not underestimate the value of having a lender who completes similar deals to yours in the same area multiple times per week.
Extensive Local Contacts
We have been in business in the D.C. metro area for more than 3 years. In that time, we have developed relationships with several different contractors, inspectors and maintenance companies in D.C., Maryland, and Virginia. If you need recommendations for any part of your deal, we will be able to put you in contact with local, top-rated companies that can assist you. We can also help connect you to the right buyer, if needed. If you work with a national lender, they will most likely leave it up to you to find your own contractors, which can lead to extra stress and take up some of your valuable time.
Faster Turnaround
By dealing with a local lender, it is easier for you to get a faster turnaround on approval, inspections, construction draws and closings. Because we are local, we can get an inspector out to your property immediately, whereas someone who is based out of state will need to make arrangements in advance for these services. Most lenders outsource to appraisal companies that could take weeks to schedule, review and produce an appraisal report. If you have a deal that needs to close fast, forget about using those other guys.
Face-to-Face Meetings
When we accept a deal, we are signing on to be your support system through the entire rehab of the property. Over the years, we have found that many people underestimate having a human connection with their lender. With face-to-face meetings, we are not only building trust, we take the time to listen to all of your ideas and provide educated, valuable feedback based on our own experiences in today’s market. By working with us, you get the added benefit of learning from mistakes that others have made, and we can help you make sure you avoid certain situations that have not worked out in the past.
As always, feel free to reach out to us with any questions or comments you may have. We value your feedback!
When it comes to real estate investing, properties can truly be transformed if everything is done correctly. A small, 3-bedroom, 1 bathroom with a one-car garage built in 1980 can become a 5-bedroom, 2 bathroom luxury home with a 2-car garage in a matter of months.
We have seen structures that are barely standing become large, modern single-family homes. If you can build the right team, your investment can give you exponential return. We have great relationships with some of the D.C. metro area’s best builders, inspectors, and maintenance workers. We have many resources at our fingertips, and can help you make the most of your investment.
Here is an example of an investment property that was completely transformed, going from a 3 bedroom, 1 bathroom to a 5 bedroom, 2 bathroom home. The investor made several changes, transforming it into a modern home that was quickly purchased, giving the investor a profit of more than $30,000.
This particular renovation was less extreme than others we have funded, but no matter how big or small the job, there is one question you should always consider: How much value are you creating? For today’s buyer, value means more bedrooms and more functional use of space. The majority of these older properties were built when it was popular to have a home with completely separate rooms. Alternatively, today’s buyer is looking for an open space where they can seamlessly interact with family and friends.
To accommodate this for the property below, our investor and his contractor added a second bedroom to the upstairs level and an additional bedroom and bathroom to the basement, creating more livable space for the buyer. He also chose to remove the wall between the kitchen and dining room, which not only provided that sought-after open floor plan, but it made the space bigger, giving the new residents more room and flexibility. The staircase in the home was also opened up, providing more space and a better overall look and feel of the home’s interior.
Many investors forget about updating the exterior of the property. When it comes to attracting buyers, the property’s curb appeal is what gets them in the door. When deciding on your budget, it’s a good idea so split the estimate into interior renovations and exterior renovations. This property’s exterior was painted, and the perimeter was also updated, proving that a simple coat of paint can completely change the overall feel of a home.
Another way to ensure you get all the value you can out of your investment is to remember that it’s ok to use existing items in the house if they’re in good shape. For example, if the property’s HVAC system is relatively new, you may be able to do a little maintenance and cleaning as opposed to buying a new system. Another part of the property that doesn’t need to be replaced as often is the roof. If you are keeping the property’s main structure and the roof is only 1 or 2 years old, you can do some minor repairs. Generally, roofs last 10 to 15 years.
As always, feel free to reach out to us with any comments or questions.
Have you considered working with a Hard Money Lender, but are a little leery of the process? First and foremost, in order to answer the questions you should expect from a hard money lender, you must fully understand your deal. If you know the specifics of the property and the estimated repair budget, you’re in good shape! While a good portion of investing may seem like common sense, here are 5 questions you should expect to answer upon meeting with a hard money lender.
Advantage
Have you ever been in front of an investing opportunity, but didn’t have anyone to sell the property to? Sometimes it’s who you know, not what you know. As a real estate agent you are presented with all kinds of properties in both good and bad condition. If you run into an investment opportunity with a property, we can help you find the right buyer within our network of investors. Real estate investors are always out there looking for the right deal. We can expand your network into ours and help you bring qualified offers to your clients. Every one of our investors is prequalified and preapproved, so when you receive an offer along with our WCP approval letter, you will have the assurance that the investor interested in the deal is qualified to make the purchase.
Private Lending in your Toolbox
As a real estate agent, you already know how to work with traditional homeowners and how to help them find financing for their future home. National lenders, such as Wells Fargo, Bank of America and Navy Federal, have the capacity to lend on properties ready to be occupied by that homeowner. When the property needs work and national lenders are not an option, some investors use cash, but a great number of them utilize private lending. At Washington Capital Partners, we specialize in helping real estate investors finance their projects in addition to providing them with the ability to leverage their capital in order to complete multiple projects at the same time. This way, they don’t have to worry about missing an investment opportunity. By working with us, you can provide a solution that mutually benefits both you and the investor.
In Part 2 of our Risky Business series, see more common mistakes that borrowers can make when utilizing hard money lending, and get tips on how to avoid them.
Value the Property: Be reasonable with the value of the property. Pushing the market by listing the property for a higher price increases the risk of the property staying on the market longer, causing a loss in profit for you.
Budget Your Money:
Cutting corners to save on the cost of a project may seem like a good idea initially, but neglecting some parts of the project can have serious consequences. For example, neglecting to pull permits, raises the risk for someone finding out and putting your project on hold. Investors should do everything possible to stick to their original plans. If you close a loan based on plans for a 4-bedroom home, but decide to change it to a 3-bedroom, the ARV will completely change. The comparables will no longer support the new value of the property, altering the value that the loan was originally based on. This will hurt your relationship with the lender and could even cause the whole deal to fall through.
Avoid Overextending Yourself: It’s easy to gain momentum with a project if it goes well, and you may immediately want to start another project. But if you spread yourself too thin with capital and capacity over multiple deals, you may be putting yourself in a situation where you will not have the power to continue working the deals, causing it to unravel and losing the money you put into it. However, if you do ever find yourself in this situation, you always have the option of wholesaling the property. This allows you to still make a profit on the property, but since you sell it to another party as-is, you don’t have to do any of the work involved with fixing it up.
Many people talk about the risks involved with hard money lending, and you may be asking yourself, “Is it worth the risk?” The truth is, as long as you know how to avoid the common mistakes, you can reap the huge rewards that come with investing in a property. Below are a few factors that, if not carried out correctly, can lead to problems with the deal.
Do Your Research: Whether you’re choosing your lender, a construction company, or just simply deciding whether or not you want to pursue a deal, make sure you know what you’re getting into. Find professionals that have done this kind of work before and can give you good, accurate quotes for prices and timing. Always do your research when deciding on a lender. Make sure your lender is experienced, well-capitalized, works in a timely fashion, and has a good reputation. Getting involved with an inexperienced lender may delay the deals because you might not get the money on time, putting you up to risk for extra days of interest. Be sure to ask your lender about their process for draw requests and releases so there are no surprises after you close the loan.
Manage Your Timeline: One of the most important things to realize when it comes to hard money lending is that time kills deals. You should always be realistic when it comes to determining the time it will take to see a deal through – from closing the loan to selling the property.
Avoid Radio Silence: One of the biggest mistakes a borrower can make is going radio silent with his lender. Not only does this cause issues with the deal, but your lender is there to help you with any issues that should arise throughout the process. We’ve been through this hundreds of times, and chances are we’ve found a way to solve whatever issue you are experiencing.
Check back with us next week for additional tips on avoiding risks in hard money lending.
One of the most popular questions we get is “Why hard money lending?” There are several ways to get loans, so what makes hard money lending the best option? Why not just go through my bank or have a friend loan the money? In this post, we’ll break down that question to help you determine if hard money lending is the right option for you.
What is the difference between a traditional bank loan and a hard money loan?
Commercial banks focus on two main things: your credit and your ability to make monthly payments based on income. They will scrutinize every point on your credit report and a history with bankruptcy can seriously hurt your chances of receiving any type of loan. At WCP, we don’t focus on your credit history. We understand that a bad economy or a loss during the 2008 crash doesn’t define you. Our business is built on the fact that we are completely asset-based, which means we focus on the after repair value (ARV) of the property, not your financial strength, and your loan is structured based on that number. Once you find the right property to invest in, we are here to back you financially.
What is the time frame for closing?
Hard money lending allows the borrower to close quickly, sometimes in just 24 hours depending on the deal. With a traditional bank loan, you are required to jump through several hoops, which means your project is on the bank’s time – not yours. The bank will evaluate your credit score, send out an appraiser, wait to approve the loan, send it to accounting, and have accounting send you the money. This process can take anywhere from one to several months. We understand you might not have the time to wait – you found a property and you want to close on the loan now. At WCP we have an in-house valuation process where we can send someone out within 24 hours of your request. All approvals are also done in-house so we have a very quick turnaround.
Couldn’t I just ask a friend or relative to lend me the money?
If someone you know lends you the money, 9 out of 10 times they will expect a partnership – to start, they want 50% of the return. So, automatically your own profit is down to half of what you make off the sale. Our loans, while the interest may be higher than commercial bank loans, are not half of the profit.
As a hard money lender we are able to give much larger loans than the bank, along with that comes a greater risk. This is why interest rates for hard money loans are higher than those on bank loans. But, the greater the risk, the greater your reward. We at WCP have been in your shoes, we have done similar deals ourselves and are able to look at the deal as if we are the investor. When it comes to valuing a property, we have the experience and expertise to tell you if the project is a good idea, or if you should keep looking. If you use a friend or relative, chances are they won’t be able to give you the value and insight that we have been trained to provide. With this added advantage of receiving professional feedback, you have the opportunity to benefit from the lessons we have learned over the years in this business.
