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Rent Estate™ Podcast Episode 10: Hard Money Loans – What You Should Know

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In this episode, join Kevin Ortner and Sean Blomquist, Loan Officer with Pine Financial Group, as they discuss hard money loans –and how they can be used to finance investment properties.

Hard money loans. You’ve probably heard of them before. These loans tend to get a bad rap. Some people assume that it’s something that you turn to if you’re broke or with no other options. Most people aren’t quite sure what to make of them.Back during the recession, hard money was used to help prevent homes from being foreclosed on. You paid a higher interest rate, but the hard money lender would step in last minute, and pay off the bank. This would bring you up to current status. You’d then refinance into a better loan, and keep your home.

But hard money loans have come a long way from their early predecessors. 

Typically with hard money loans today, there’s a much stronger focus on investment properties, rather than owner-occupied homes. These days, it’s more about adding value to your investment, and using a hard money loan to help you get there. So an investor who’d like to buy a fixer-upper with the intention of fixing it up, could use a hard money loan to get the funding to do so.

Ideal candidates for these loans are fixer-uppers. Sean explains that Pine Financial Group lends based on the after repaired value of the property. Typically, the loan is for 65-70% of the loan to value, based on the home’s end value –“sweat equity” if you will, what the home will be worth once it’s fixed up. 

These days, hard money loans aren’t for people who are broke, or have bad credit. Instead, they’re an investment tool –giving you the ability to leverage your money to go further. Instead of buying, say, one property with all cash, you can get ten deals done, while hardly using any of your own cash.

Yes, with hard money loans the interest rates are higher, but since the loan is extremely short-term, it’s not really as big a deal as many people think. They can be a tremendously useful tool that offers a great deal of flexibility when it comes to securing financing and refinancing as well.

So how do hard money lenders determine after-repair value? 

Sean says that investors will do the legwork necessary to create what they believe the after-repair value to be. They’ll work with a Realtor, and pull comps, do a CMA (comparative market analysis), and make an estimate by comparing like properties. They’ll then get the property under contract, before approaching the hard money lender. Then the lender will have an appraisal done, and hopefully it will match what the investor was thinking. If not, it’ll impact the value of the loan.

Of course, when it comes to successful investing, finding the right property is key.

Fixing and flipping isn’t like a TV show, instead, it’s about finding a way to add value, while ensuring that the estimated end value is in keeping with what the local market will support. So instead of just paint and carpet, you’ll need to bring the home up to today’s standards, says Sean. Look for a way to add tangible value, in most cases this will involve more than a quick freshen up.

How do you buy for 0% down? Is it worth doing? 

It can be done, says Sean. Although it’s getting harder. This means if you can find a property that you can buy, sell, and close for under the 70% threshold, then you can do it for 0% down –at least through Pine Financial. Keep in mind, though, that while you’re in it, you’ll have holding costs, like interest rates to pay. But the amount will depend greatly on how long the project goes on for. Sean’s had some investors jump in, and get things finished in a month and a half. The short extent of time means extremely low interest.  

Refinancing is also a crucial part of making profit in a BRRRR (Buy, Rehab, Rent, Refinance, and Repeat) strategies. With this approach, Sean reminds investors to exercise caution so they don’t mess up their debt-to-income ratio, something that will make it a lot harder them to quality for a better interest rate when it comes time to refinance. So investors: don’t rush out and lease a brand new truck!

Finding the right team is also crucial, says Kevin. It’s important to have professionals who are experienced with investment properties. Find a Realtor who’s familiar with the process of buying and selling investment properties. When it comes to hard money lenders, again, it’s important to ensure you work with an investor-friendly company. Make sure they have a proven track record, and a solid process for refinancing, and that they understand the game. Assembling a team also means that the team members need to be willing and able to work together. The Realtor and hard money lenders need to be able to talk. When assembling your team use referrals, use references, and vet them thoroughly. 

Kevin also chimes in with his strategy that he recently used paying for an investment property. He ended up using cash to pay for the property. When he went to refinance, he discovered that it’s difficult to refinance a cash property. Had he used hard money, though, there wouldn’t have been any problem when it came to refinancing. 

At the end of the day, hard money loans don’t work for turnkey properties, but with the right strategy –and when used for value-add properties, it can be ideal.

Visit to learn more.

Or reach out to Sean Blomquist directly at: [email protected]

Sean is the local rep for Minnesota, and is happy to talk to anyone who’d like to learn more.

Are you looking to buy a fixer-upper? Do you have any experience with hard money loans? Share your experiences with us in the comments!

If you enjoyed today’s podcast, then be sure to check out Episode 02: Future-Proofing Your Investments to learn about building a long-term portfolio.

And of course if you’d like help with your investments or would like to create a real estate investment plan, visit Renters Warehouse. Live, invest, and rent –all under one roof!

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