Here’s four responses that came in on my survey in the last week to the question, “what’s your biggest question about investing in real estate?”.
FINDING A GOOD FINANCING SOURCE. THIS IS EVERYONE’S BIG PROBLEM.
How to secure money.
Getting Funding.
Financing.
As I’ve been reflecting on these responses and how I’d answer, I’ve come to the conclusion that on this blog, I’ve beaten the dead horse with the stick so many times on how to get private loans.
It really doesn’t make much sense to continue from that angle since you can look at almost every page or blog post on my website for that information.
But I was a bit perplexed by how frequently these and similar responses have been coming up in the survey, despite all of the information I provide that should solve this problem.
Which got me thinking that maybe I’m taking the wrong angle…
So in this post, I’m going to talk about why you are not getting private loans or hard money loans for your real estate investments.
The first issue is that you don’t know how to evaluate a property properly. I’ve written extensively regarding this topic on my blog here, so do a quick search and you’ll find numerous articles.
You can also visit our You Tube channel to watch videos on evaluating properties. There’s at least 10 of them up there: http://www.youtube.com/user/DoHardMoney
What you need to understand is that if you are not looking at a property the same way a private or hard money lender looks at the property, you are going to have numbers for your ARV that are way different than the lender.
This leads to the second reason why you aren’t getting the financing you want… unrealistic expectations.
Most newbie investors think they can submit a deal and get the exact amount of financing they are looking for on the project.
That’s never going to happen if you don’t evaluate the property in the same way that the HML looks at it.
Let me give you an example of what happens on most of the applications we receive. The investor thinks a property is worth “x” on the ARV. We send out evaluators to the property and discover that the ARV really is worth “y”, with “y” being significantly less than “x”.
That difference is usually five figures and sometimes even six figures. At DHM, we would still make a loan offer to you in this situation. However, the difference between what we offer and what you need to close would have to be covered by you.
Which leads to another part of the unrealistic expectations… the majority of these people need 100% financing and think that it’s going to happen in every circumstance.
However, that’s not the case. First of all, the 100% financing options are only available to our Diamond members. Second, even if you are a Diamond member, there’s no guarantee that you can still get 100% financing on the deal.
There’s a ton of variables that contribute to that. You got the area you are investing in – some of the components of the Diamond program are not available in all states, this affects whether gap financing is available.
You also have different components that you can choose to use/not use that can play a role in getting 100% financing.
And finally if you are relying on gap financing, there’s no guarantee that one of our partners will even want to participate in your deal.
So while we champion 100% financing and we make those options available to people, you still have to realize that the ducks have to line up properly in order to get true 100% financing on private loans.
The bottom line is that there’s a boat load of money available through private lenders and hard money lenders. We just struck a partnership with a group that can do up to $500 million deals!
Finding people that have the money is really NOT the problem that you have either… I mean you’ve already discovered my website.
Your real problem is that you aren’t being patient enough to get the right deal in front of a lender. And you aren’t getting creative on how you structure deals to get all the funding you need to close the transaction.
Let me give you an example of what I mean by structuring the deal.
I get a ton of people coming to my site that are Armando Montelongo students. We received an application on a property where the shortfall was $100,000 but the investor still wanted to move forward.
His response to me was – I have $60,000 I can put in and I’ll find someone else to put up $40,000. We’re closing this deal next week.
The point I’m getting at here is that you don’t have to put up your own money like this guy did, but you have to network and have people in your pipeline that you can bring into deals.
My assumption here is that the people giving these responses are newbies and if you are, you only have to get creative like this for your first few deals.
Get 2-3 under your belt where you have some nice profit and you’ll have the cash reserves that you can put your own money in instead of bringing in a partner.
And just to be clear, all of this only applies if you are in a hurry to do deals!
You can always keep looking until you find that perfect deal and all the numbers align exactly for you to get the 100% financing you want. It’s just going to take time and patience if you go that route.
To sum everything up, here’s the reason why you are not getting the private loans you want:
1) You don’t know how to evaluate a deal like an HML
2) You have unrealistic expectations of financing
3) You aren’t being patient in finding the right deal to get 100% financing
4) You aren’t getting creative with ways that you can structure deals so you don’t have to wait for all the start to align for 100% financing.
To solve these problems, start educating yourself on evaluating properties and start networking with people that can help you get into deals.
