Here’s how to use both hard money and bank funding to maximize your cash flow.
You can’t get by on just hard money or banks alone. Hard money and bank funding both have their place in your real estate portfolio.
Here’s an overview of the advantages of both types of leverage.
Speed with Hard Money
What if you have a great deal, but you’re required to close in 5-7 days? In that case, you need hard money.
You’ll meet sellers in your real estate career who just don’t want an extended closing. These sellers would rather you close quickly – and they’ll give you a better deal on the price if you can do it. Sometimes, taking too long to secure your financing can get you kicked out of a deal.
You can call your hard money lender and get leverage fast. There’s no hold-up for an appraisal or trudging through a lengthy underwriting process. Hard money is specifically designed for real estate investing.
Even seasoned real estate investors, who do dozens of deals every year, still require hard money from time to time. Every investor runs into deals where they need to close quickly. Whether it’s because your bank won’t be ready in time, you’ve maxed out your line with your hedge fund, or some other unexpected circumstance, you need a hard money lender in your portfolio for speed.
Fast closing can capture a lot of equity on a property. Despite hard money being one of the most expensive forms of leverage, purchase price savings on a quick close can far outweigh the cost of the loan.
Pricing with Banks
If hard money is for speed, then banks are for price.
Finding a bank that loves working with real estate investors is a valuable weapon. If you can build a relationship with the right bank, you can get a better rate and a better closing cost.
Some circumstances when you’d benefit from getting your leverage from a bank include:
- Whenever you have the time to close. If you can afford to wait for appraisals and underwriting, your loan costs will be much cheaper.
- If the rehab work will take longer than 6-9 months. When you close on a flip with hard money, you need to complete construction on the property within a month or two. If you use a bank loan, you can afford to spend longer fixing up the house.
- Any time you want more cash in your pocket! Banks have half the interest rates of hard money lenders. Lower rates and fees mean more money in your pocket by the time your property sells.
Hard Money and Bank Funding
Hard money’s role is to save the day when you need a quick close. Banks are the stars if you need a slow and steady loan at low cost. Having just one or the other won’t cut it. You need both forms of leverage.
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