Real Estate Investing 101

Need funding for your next real estate investment but can't get traditional financing? Discover the power of hard money loans - short-term, high-interest loans secured by the property itself. Learn how to find the right private lender, negotiate terms, and use hard money loans to fund your deals and build your wealth. From fix-and-flips to rental properties, hard money loans can be the key to unlocking your real estate investing potential. Watch now to learn more!

Stay tuned for our five-part series where we discuss the top investment strategies!

More of a reader? Catch the video transcript below!

Hey guys, welcome to part four of our five-part series all about how to invest in real estate with little to no money.

Missed the others? Don’t forget to check them out!

Part One: How to Make a Profit With Wholesaling

Part Two: The Power of Lease Options in Real Estate Investing

Part Three: How to Partner Up With Experienced Investors

Part Five: How to Fund Your Deals With Crowdfunding

Today, we’re focusing on how you can use hard money loans to fund your real estate investments.

What are hard money loans?

Hard money loans are loans provided by a hard money lender. Because they are private money lenders, they aren’t subjected to all of the rules and regulations that a major bank would be (such as Fannie Mae, Freddie Mac, FHA, and VA guidelines).

Hard money lenders typically loan the money based on the property and not on the borrower.

What are the benefits of hard money loans?

So, let’s use a fix-and-flip situation as an example. A lot of hard money lenders will loan you a percentage of the after-repair value. For this example, let’s say the lender is offering you a loan of 70%. Let’s say the after-repair value (the value after you flip the home) is $500,000, so the hard money lender is going to loan you $350,000. We’ll say you buy the property at $300,000 and the property is going to cost $50,000 to flip. In this example, the hard money lender is loaning you the $300,000 to purchase the home plus $50,000 to fix it up. Why? Because they only care about the after-repair value of the property.

If you can structure a deal like this with a hard money lender, wherein you’re able to borrow the acquisition cost and the price of repairs, all you have to do is sell it for $500,000 (minus your holding and closing costs), pay back the hard money lender, and boom — the rest is profit for you.

What are the drawbacks of hard money loans?

This sounds simple enough, right? Well, there are some things to keep in mind if you’re choosing this investment strategy.

Because hard money loans are so flexible, they typically come at a price — and that price is usually some points up front and a higher interest rate.

It’s going to be more costly than a traditional bank loan. They’re typically on shorter terms — we’re talking 6, 12, 18, maybe 24 months, so you’ll want to make sure you have ample time to complete the project. They’re going to loan you money at a high price for a short period of time to allow you to get your investment done.

So, just make sure that when you’re working with a hard money lender, you know your time frames, the cost of capital, and the repayment term. Make sure your paperwork is ironclad and that you fully understand your rights and responsibilities.

That’s it for me today, guys! Make sure you check out my other posts in this five-part investment series, and I’ll see you in my next one!

Brent Edwards (aka Brent the Broker) is a residential real estate agent and Realtor in San Diego, CA who helps clients buy and sell homes in San Diego, California and all surrounding areas. Brent is a highly-recommended Realtor in San Diego by family, friends and past clients. Call Brent today at 619-550-8070 if you have any questions about real estate in San Diego or you'd like to buy or sell a home.