Los Angeles Hard Money Loans
Are you interested in getting a hard money loan to fund your next deal in California? Delancey Street can help you with any amount of hard money lending you need. Delancey Street is a premier hard money loan, with over $100 million in funding done for clients. We have a pool of private money, ready to help and fund your next project. Our founding partners have years of experience doing hard money lending. Our hard money lenders can not only fund your next real estate project – but can also give you immense years of experience, and business assistance. If you’re unsure if hard money is right for you – then we can help.
What is a hard money loan?
A hard money loan is a type of asset-based loan that allows a borrower to access financing and use his or her property to secure the debt. Hard money loans are not commonly provided by conventional financial institutions; instead, they are offered by private companies and investors. A hard money loan ensures that a borrower is able to get capital – fast, without worrying about credit/ability to repay the loan. hard money lenders offer loan services based on the value of the property used as collateral, without necessarily considering the borrower’s likelihood to repay their loans. This is because in case the loan is not repaid, they will sell the property used as collateral to recover their finances and the accrued interest. Institutions that offer hard money loans are more concerned with the value of the property used as collateral and not the borrower’s financial status or credit history.
What are the benefits of a hard money loan?
Hard money loans come with various benefits. But like all financial decisions – the decision to accept this type of financing is something you have to think about carefully.
Quick access to cash: When your project is about to fail, quick access is huge. Hard money lenders focus on the value of your collateral, period. In contrast, traditional lenders look at the borrower. Once you’ve developed a good working relationship with a hard money lender, you can probably even get loans approved in hours. It makes hard money loans super convenient, in contrast to traditional loans which require a length process.
Flexible: Hard money loans are definitely more flexible, in contrast to ordinary loans. Traditional hard money lenders don’t subject you to rigid procedures and forms. Because hard money lenders don’t have the same stringent guidelines as traditional lenders, borrowers can help negotiate more flexible repayment schedules and rates.
No Limit: Traditional lenders sometimes cap you, because they don’t think you can repay the loan. In contrast, hard money loans look at the potential of your project. Because they are focused on your project, and not you, they don’t have loan limits. Most hard money lenders will provide any loan as long as they are convinced the asset has sufficient value.
What are the limitations of a hard money loan?
Although hard money loans are gaining popularity, especially among real estate developers, they do have a few limitations that might make them unattractive. Some of these limitations include:
High-interest rates: Hard money loans attract significantly higher interest rates than those charged by conventional financial institutions. Interest rates on hard money loans are usually in double digits. The high interest rates charged might make the loans an unattractive source of quick financing.
Lenders might take advantage of the terms of the loan: Since lenders are concerned with the value of the property you use as collateral, they are likely to sell it in case you default in repayment. The terms of the loan do not restrain the lender from selling your property if you are unable to make repayments as agreed.
Hard money loans are referred to as a, “last resort,” depending on your situation. Experienced real estate investors know that when you want to purchase a property – you have to move fast. When you want to purchase a property within a few days, a hard money loan is the only way to go. Traditional loans take immense time, and it’s impossible to get funding within a period 3-12 days. Most lenders take 1-3 months.
Essentially, hard money loans are bridge loans – which are secured by real estate.
Credit score doesn’t matter, because your creditworthiness doesn’t matter. The lender is only looking at your collateral. Lenders look at the collateral, meaning the real estate property itself, since it’s being used as a guarantee that the loan will be repaid. Because the property is being used as collateral, lender’s can move fast in making decisions. Banks don’t make loans based on collateral only, they look at ability to repay.
Hard money lenders take a risk on you by offering to give you money, even if your credit worthiness is questionable. This type of loan is used mostly by real estate investors. Banks tend not to make loans to investors because banks want to make loans where they are confident the loan will be paid back. They are not risk prone. In some cases, homeowners facing bankruptcy, or foreclosure, choose to take a hard money loan in order to get out of the situation they are in. People unable to get a home loan with a traditional lender can also get this type of loan.
What can I purchase with a hard money loan?
Hard money loans can be used for property types such as single family home, multi-family residential homes, commercial property, land, and industrial properties. Collateral and personal finances are the two most important components a lender will look for when evaluating a borrower. Lenders don’t care about your credit, or credit report. Their primary concern is your ability to pay the loan back – via your personal finances, and the value of the property (in case they have to foreclose your property).
Lender’s often look at the loan to value (LTV) ratio, when evaluating a deal. Lenders prefer a low LTV, at no more than 70%. Most lenders prefer to lend at this level, because it means that if the lender has to sell the property – he/she has a good chance of getting their original investment back.
Pro’s and Con’s of California Hard Money Lenders
Quick Approval: Lenders don’t go through lengthy credit checks on the borrower. They don’t look at that at all. Lenders evaluate borrowers differently than traditional lenders do. In most cases lenders will approve a loan in a few days if the collateral requirements are met.
Flexibility: Hard money loans can be used for virtually any type of hard money loan. Investors, and homeowners, are eligible for this type of loan. Only the most minimal underwriting procedures are used. Depending on the conditions, some lenders may provide 100% financing. It all depends on the deal, and if it makes sense on paper.
New Borrowers: Hard money loans are good for new borrowers who have limited, or poor, credit history. Hard money loans are great for borrowers who will not be approved by traditional lenders.
Los Angeles Hard money loans vs Conventional
|Los Angeles Hard Money Loans||Conventional Mortgages|
|Max Loan Amount||90% LTV / 80% ARV||80-95% LTV|
|Minimum Down Payment||10% of LTV, or 20% of ARV||3.5% to 20% LTV|
|Points||2-10 points||0-1 points|
|Loan Term||1-3 years||15-30 years|
|Time to Approval||24 hours||45-60 days|
|Property Type||Residential and Commercial||Residential and Commercial|
Disadvantages of Los Angeles Hard Money Loans
Costs: It’s not uncommon for interest rates to be as high as 15-20%. Origination fees can be 1-2% of the interest rate per month. Lender’s focus on making a profit, and getting their money back as soon as possible. These high costs provide a huge incentive for borrowers to pay back the loan as quickly as possible.
Short-term: Hard money loans have terms of 6-18 months. Traditional banks will allow 30 year loans, but hard money lenders don’t. If the loan isn’t paid back within the designated time period, the lender has the option to either increase their interest rate, or take possession of the property.
Loss of Property: Hard money loans are secured by real estate. If you are unable to pay back the loan, or refinance the loan with a different lender, then the original lender can take over the property and sell it.
When is the best time to use a los angeles hard money loan?
Borrowers should consider using a hard money loan instead of a traditional bank lender when you need quick access to capital. Gaining access to this quick capital comes at a higher interest rate.
-The investor is looking to get a higher return than if they invest that into bonds, or savings accounts.
-The investor is taking on risk by investing in your project – so the interest rate will be higher. For example, a 20% loan to value loan on a rented commercial office building is less risky than a residential rehab loan with a 70% LTV.
-Everything is negotiable, and it’s up to you to shape the deal.
Can I go to a traditional lender instead for a los angeles hard money loan?
You definitely can. Banks, however, require strong collateral, a proven history of good credit, and cash flow. In addition, banking institutions will make you go through a rigorous application process, and aren’t quick at decision making. Los Angeles hard money lenders are the opposite of banks. They are flexible, and focus primarily on the collateral used in the loan. They can fund your Los Angeles hard money loan fast.
How do I get preapproved
Hard money loans are a completely different animal than the funding available for you at a local banking institution. Local banks are going to begin, by looking at your creditworthiness first, then scour your credit history down to the last detail. With the hard money loans, the lender is more likely to be flexible in some areas, so a preapproval can make the process go even faster than usual.
Here is how you get your preapproval for the hard money loan you request;
Know Your Limitations First
When you are new to the real estate industry, don’t assume that investors are going to come running because you have the chance to make a small fortune on a property. Without any track record, you need to slow down and focus your efforts on how to convince a potential investor to take a chance on you. When you are starting a house flipping business and already have a buyer on the hook, don’t get too aggressive with investors because they might not be as excited about this project as you are.
The best thing to do is to analyze your limits and try to work within those parameters until you have more credibility. Don’t give up because you might have no history or assets, persistence and opportunity could peak the interest of an investor who likes to take risks.
Get Your Documents in Order
Getting preapproval for hard money loan is all about the documents you bring to the table. Private investors are interested in one thing, growing their bank accounts, so they need to see that you are going to give them a solid chance to do that with minimal risk on their part. Get an appraisal done on the property, speak with contractors about estimates for work that needs to be done, and show the investors there is a strong demand for the property when repaired.
If you already have a commitment on the table from a buyer, this alone can be the reason an investor takes a chance on you.
Determine the After Repair Value
Having an appraisal of the property now is a start, but hard money lenders want to see how much it will be worth after all the work is completed. Otherwise known as the ARV, the after repair value is the key to securing the money needed to get the investors to accept your offer. Part of the preapproval process includes showing how the borrowed amount will multiply the value of the property when completed, minus expenses. Hard money lenders have their own teams crunching the numbers, so if the borrowed amount doesn’t drive the sale price high enough, they won’t take the chance.
Have third-party appraisal companies determine the ARV for the said property. This will go a long way in helping with the preapproval process.
Willingness to Be Flexible
At a traditional bank, the risk department denies the loan and the deal is dead, but with the hard money loan, an eager investor who sees potential might be more flexible. There are plenty of hard money investors who would be willing to take a risk on you if you offer collateral. Your portfolio is the key to getting approval, so if you lack experience and history, bring more to the table. Offer your retire account as part of the bargaining chip, investors who are risk takers might just jump on that opportunity.
At the end of the day, a hard money lender is just like any other investor: he/she is looking for an ROI. If you want to get their investment, you have to show them why you deserve it. You have to be credible, and have facts that support your case.