Find Property or Obtain Captial

12 Replies

Hello All! So I will be finding a property for my first rehab in April. I plan to use a Hard Money lender initially. Everything I am reading is saying find property first, finance, rehab..... Can someone please help to put my mind at ease in relations to financing via a Hard Money Lender? I am slightly concerned that on April 16th I find the perfect place and then have find a Hard Money lender, most of the sites make it seem so easy. Should I get approved for a certain amount PRIOR to searching for a place? Or remain steady and focused and find the place first and than ask for financing? The concern is I find the place, seek financing and loose the opportunity in the interim. Thanks!

Yes, go ahead and get pre-approved. It is easy to do and will put your mind at ease so you aren't scrambling at the last minute. Many of these HML's will also help you think through the numbers. Good luck!

Start creating relationships with a lender or private investor. Tell them you are on the look out and get their parameters on what and how much they will fund. 

Best of luck in all your endeavors.  

I agree with all above, get a lender lined up and pre qualified. Then when you find a deal, you have a second pair of eyes on it (the lender) and you can negotiate more confidently knowing you have the financial backing.

Finding deals without having money lined up is often (not always) putting the cart before the horse.

Talk to your lenders first. It may seem like a scary process, however, hard money lenders are not in the business to take advantage of people. For the most part, their goal is to help people get funding for properties or projects which they were previously unable to fund. They will assist you in getting into a deal that helps all parties, not just themselves. 

Here's my thought...

You should be shopping for properties AND building a relationship with a lender at the same time. These activities do not need to be exclusive of the other. Don't wait to build a relationship with a lender before you go shopping. I think you're missing out on opportunities if you wait.

If it's a good deal, it's easy to get an HML to fund it. Obviously there will be some criteria that you may need to meet to qualify.

Having good lenders to work with is critical. You need to create the relationship, but you don't need to wait for it. Ask around at your local REIA for some recommendations. Who have others used and what was their experience. Not all HML's are the same. Even if they offer identical programs, they will differ in thought process, speed and helpfulness in helping you succeed.

Good luck!

Always find the money first. Get an understanding of what money options are out there, what they are looking for and what the best source is for you. You may find there are better options than the HML. Finding a property and then finding the money, puts you in a poor position.

Originally posted by @Jeff Cichocki :

Here's my thought...

You should be shopping for properties AND building a relationship with a lender at the same time. These activities do not need to be exclusive of the other. Don't wait to build a relationship with a lender before you go shopping. I think you're missing out on opportunities if you wait.

If it's a good deal, it's easy to get an HML to fund it. Obviously there will be some criteria that you may need to meet to qualify.

Having good lenders to work with is critical. You need to create the relationship, but you don't need to wait for it. Ask around at your local REIA for some recommendations. Who have others used and what was their experience. Not all HML's are the same. Even if they offer identical programs, they will differ in thought process, speed and helpfulness in helping you succeed.

Good luck!

I agree in that you can certainly shop for deals and a lender at the same time, but before you ever make an offer, you should have that lender lined up, otherwise, how do you know what to ask for in your purchase contract! If you have a private lender that does not need an appraisal to fund. Then you don’t need to have an appraisal contingency in your offer making your offer stronger. Having your lender lined up certainly does not take a long period of time and if it does, you are front about it the wrong way. It is extremely important that you have your financing lined up first prior to making any offers. Of course this is just my opinion and strong suggestion.

 

@Alfonzo Roberts ,

While it's great that everyone is willing to share their opinion about finding the funding first, I respectfully disagree. I think telling anyone in this business to find the funds before even starting to look for a deal does a great disservice to them; especially when their new. If a new investor doesn't have anyone in their circle with the funds, they will run around in circles for a long time trying to figure it out. Most new investors are told to find private money because hard money is too expensive. But what if it's a great deal and their only way to get it funded is with hard money? Many new investors die on the vine trying to find funds for a deal they don't have. Many new investors die on the vine because their not out there working multiple things at a time. It's not easy being new. It's not easy to find funding when your new.

I'm not just a lender and I'm not saying this because I think everyone should only borrow from me. I'm not the best fit for every investor. I'm saying what I'm saying because I play both sides of the fence. My business partner & I are investors, lenders and we run REIA's. We also attend several others that our friends run both around our state and when we travel. My opinion is based on watching countless new investors come in with dreams of being successful only to have them crushed by well intentioned but impractical advice. I've watched a lot of investors at every REIA (mine and others) I have every attended flounder because of this.

The reason you need to do them both at the same time is because an investor (especially a new one) needs to figure out what kind of properties they want to go after. They also need to figure out what their lenders want to finance. Not all lenders will fund a deal just because the investor thinks it's a good deal. Most lenders have a taste for one kind of deal over another. You have to figure out if that lender is a good fit for what you're shopping for. You will likely need to line up multiple lenders. And then... You have to put the two together if you want to make the deal a no-brainer for the lender. A really good lender is your financial partner in the deal.

And, while it is important to create a relationship with a lender... Consider this from the lenders point of view... How can a lender give any kind of meaningful commitment to anything without the property being in place? It doesn't matter whether you are using Hard Money or Private Money; the situation is the same. The funds are only tentatively pre-approved. All the lender can say without the details is... "I think I like you and I think I like what you're about to do". A pre-approval is completely worthless because there's no meat behind it. If you've ever read a pre-approval letter from a lender, they are about as non-commital as can be. I've never seen a pre-approval from a lender that is worth more than the paper it was written on; mine included. All pre-approvals can be backed out of in the blink of an eye. The lender may like what you're trying to do, but hate the property. Then what? Most new investors stop looking for lenders to work with as soon as they find their first one (bad idea - they need multiple). Now they have a property under contract that they thought they had funding for, but no where to go. It really tarnishes a new investors reputation when they bail on their first deal because they didn't work on marrying the two together properly. Our reputation is our most valuable asset that we have. As both an investor and as a lender, I can't tell you how many times I've seen this happen.

Another thing to consider when your creating a relationship with a lender; especially a private lender... If you approach a lender and they like you and potentially want to invest with you, you have to get out there and hustle hard. If you don't find a deal fast enough, what do you think the investor will do with their cash? Every day you don't help them keep it busy, they are losing money. It's highly likely that they will have funded someone else's deal by then. This is why all investors need more than one lender in their contact list.

Sorry for rambling. Hopefully it sheds a little light onto the subject from a lenders point of view.

This has sparked some very solid discussion that hopefully proves worthwhile for the OP. I'm actually going to respectfully disagree with some points from some very smart and knowledgeable people in @Will Barnard and @Jeff Cichocki . I do agree that pre-approvals are barely worth the paper they're printed on and that sometimes too much is made of building lender relationships. The reason I think newbies should get lending lined up ahead of time though is because I've encountered too many newbies who are shocked at just what it takes to get a loan. I've seen all kinds of things that prevent a loan from getting done and I think it's good for a newbie to hear that up front than getting themselves into a deal they ultimately won't be able to close on. Just patrolling these forums I've seen too many people who don't even know what HML stands for and they're in the process of looking for a property. Talking to someone who is a professional in the business can be a major aid to a new investor before they get themselves too far along in their property search and I think for a new flipper an HML represents that better than the other professionals they'll encounter along the way (i.e. realtor, attorney etc).

Just a quick point on what Will said...if you're new I don't think you should  be surrendering appraisal contingencies unless you really know what you're doing. Don't extend too good of an offer that gets you in trouble down the road if you aren't in a good position to present that offer. There are people on here that can offer above offer price because they know they're going to slice up the lot, put up another house, etc but stay in your lane. You're better off losing out on a property than getting stuck in a situation that's too much for you.

Hey @Alfonzo Roberts how do you know that you are going to find a deal in April?? Have you been looking for deals in the last 6 months?? How many REIAs do you go to?? Probably not that many because there are plenty of lenders at the REIAs. 

If you have been to the REIAs also, you should have made 10 or 15 friends who already do what you want to do. THEY will tell you in person who they have used and what terms they gave them. When you get out there and meet some people and talk with them in person things get so much easier.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here