We’ve seen many new hard money lenders enter the residential real estate investment industry nationally over the past year as loan rates have remained low and housing demand has increased. In addition, we have seen several lenders grow to compete on a nationwide scale across various states.
For investors looking to finance their next residential property or BRRRR (Buy, Rehab, Rent, Refinance, Repeat) project, there is no shortage of competitive interest rates.
Real estate investors benefit from the competition among hard money lenders, but if you don’t know how your lender intends to conduct business with you, you could be in for a nasty shock. As a borrower or investor, it’s up to you to look past the “teaser interest rate” and do some research to see whether a loan is really the good deal it first appears to be. Reputablelocal real estate private lenders with a strong commitment to their communities can provide important advantages over businesses that lend in several markets today and disappear tomorrow.
Find the best lender for your subsequent real estate investment with these five tips:
Beware of upfront costs
Find out the purpose of any upfront payments your lender makes, such as application or due diligence fees. A warning sign is raised if the lender fails to specify why the advance payments are necessary. It’s no secret that there are some dishonest people in the hard money loan sector, which is why a good lender will be transparent about their expenses. Over the years, a lot of people have paid an application fee to start the loan procedure but never heard from their lender again.
Not always is the lowest interest rate the best option
Low-interest rates are alluring, but they might not be completely accurate. Ask your lender about the costs you can anticipate before, during, and following the closing. Keep looking if a hard money lender won’t provide such information in writing.
Be on the lookout for a commitment to customer service
By acting as a reliable source for borrowers, local lenders hope to attract repeat business. A lender is the kind of firm you want to do business with if it prioritizes creating lasting relationships with its investors.
Also, think about how simple it will be to communicate with your lender. When calling an 800-number for help from a major company with locations around the nation, it’s possible that you’ll speak to a different agent each time. When you work with a lender that focuses on your industry, you may reach your specialized loan specialist by calling them immediately (and not three time zones away on the opposite coast).
Inquire about the draw’s processing time
Learn how long it typically takes the lender to process a draw. The time it takes for many of the largest lenders to pay borrowers for renovations done on a property can negate any projected savings from a lower interest rate.
Most importantly, competent contractors are one of a real estate investor’s most valuable assets in today’s market. Your progress will be delayed if you wait two weeks or longer for your draw to arrive and cannot pay your subcontractors. This could result in your property being taken off the market before it is ready to sell and necessitate getting your loan extended (and the extra expenses that go along with that). Simply said, delayed draws can cause your project to run into the red while you wait for your money, lose skilled staff, and then search for and pray that the new staff is equally qualified.
A reputable local lender that prioritizes customer satisfaction would typically provide an advantage on draw processing times, rapidly paying back borrowers.
Pick a lender that is knowledgeable about the market you plan to enter
Some lenders will provide loans in any market even if they are unfamiliar with the area or neighborhood. As an investor, this can give you freedom, but it can also lead you to problems if you borrow more money than the market will bear to remodel a house. A trustworthy lender wants you to succeed. You benefit from their expertise when you invest with a renowned local business.
Make sure you know what you’re receiving, whichever lender you choose. A trusted local lender will frequently be able to provide you with superior service and speed up the rehabilitation process.