Underwriting Hard Money Deals

Hard money loans may be the perfect solution to help fund your next deal. See if a hard money loan is right for your next investment.

Plenty of real estate investors have used hard money to fund a deal at some point in their career. In fact, many investors only look for the hard money deals that call for a fast close or a level of renovation that most banks fear. I started out my real estate investing career buying and rehabbing single family houses in Texas, and I used hard money. In those days (pre sub-prime meltdown) it was a lot easier to qualify for a hard money loan as most lenders looked mainly at the equity in the property. Fast forward a couple of years and today we find many hard money lenders underwriting loans not too different than their conventional FHA brethren. Well, maybe not quite as conservative, but underwriting times have changed. As a private money expert and underwriter, I look at the following five aspects when evaluating hard money deals:

1) What type of collateral are we underwriting? Whether your buying and rehabbing a single family house, apartment building, or office warehouse, our underwriting team will take a hard look at location and demographics. We follow the emerging market trends and like hard money deals in areas on the move, especially when it comes to job growth, rental occupancy, and tax incentive programs. 

2) Do you have experience? Sure we all have to start somewhere, but newbies would be advised to find an experienced partner, or at the very least, a solid general contractor, especially if building new construction and/or rehabbing property. 

3) What's the exit plan? With the credit crunch still rearing its nasty head, borrowers need to have a well researched exit plan. That means you need to know how many days or months it will take to sell the property. Borrowers also need to be able to refinance as well. That means we will look at the credit score, and our preference is above 600. 

4) How much cash do you have in the deal? Underwriters like to see skin in the game, period. It shows determination and serves as motivation. If you're buying the property then we will probably require several months of prepaid interest, loan fees and closing costs paid at close. 

5) Can the borrower carry the project? As underwriters, we will factor a percentage of income generated by a property to be credited towards debt service. That's why it makes sense to buy income property. Be prepared to show a couple of month's bank deposits.

Now for the good news. My firm specializes in processing, underwriting and placing private, hard money loans. We have a solid network of more than 220 private lenders who have an appetite for a variety of hard money deals. They will consider raw land, apartments, office, retail, hotel, industrial, warehouse, new construction, and SFR investment. Our lenders love renovation projects as well. Don't be discouraged by some of my underwriting guidelines above on hard money deals. Keep in mind, that most of my private lenders are still mostly concerned about the equity in the property. They are not in this game to own property, only to make top quality loans on hard money deals.