Conventional mortgage lenders say, “show me the money.” That requires a thorough, time-consuming examination of an applicant’s credit and finances. Hard money lenders like Black Brook Capital say, “show me that you can make the money.”
We don’t focus on an applicant’s credit worthiness or employment history—or require stacks of documents. Our expectations are more simple:
- A property with solid income potential.
- A proven ability to restore it to market value.
- A solid plan.
- Sufficient cash reserves and income to make a down payment and repay the loan.
In a hard money loan, the property itself—rather than the borrower’s financial history—is the centerpiece of the deal.
The interest rate is higher than with a conventional mortgage, because we’re assuming higher risk of the loan. But on the upside, the length of the loan is shorter.
Before you get a hard money loan
Besides a property to purchase, the most important thing to bring to the table is a solid plan.
Identify a target property
Generally, hard money lenders finance distressed properties. In the most basic terms, distressed properties are those whose owners can no longer manage them properly. This can happen for a variety of reasons, and there are many different ways to identify such properties. Learn more about Finding a Distressed Property in our blog.
Identify your real estate investing strategy
There are many different real estate investing strategies, with varying degrees of hands-on involvement by the investor. Here are four popular ones, ranked from the least to most labor-intensive:
- Wholesaling: The investor puts a property under contract and flips that contract to a cash buyer, charging a finder’s fee.
- Wholetailing: The investor purchases a property, puts in just enough time or money to make it marketable, and sells it for a profit.
- Buy and hold: The investor purchases a property for the long term, renting to tenants to create consistent cashflow.
- House flipping: The investor purchases a property, makes major repairs and updates, and then sells it for a profit.
We explain in these in more detail on our Investment Strategies page.
Identify upgrades
In addition to picking your strategy, we also want to know the basics about the opportunity at hand:
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What are the anticipated repairs and corresponding costs?
While the comprehensive scope of work is due later in the process, we need a fairly detailed summary when you apply.
This will assure us that you understand what updates are required and what resources will be needed to complete the job.
- What will be the After Repair Value (ARV)?
- How long will the project take?
- What is your exit strategy? Will you sell the property or refinance?
Assess available capital
While Black Brook Capital doesn’t examine your finances as deeply as a conventional lender, we do expect that you have some available cash. We want to be your partner on your real estate investment. So it’s important that you can prove that you’re committed to successfully repaying the loan.
The specific amount of money you will need depends on the details of your investment opportunity. To help estimate the required funds, you can run some numbers on the mortgagecalculator.org Hard Money Loan Calculator.
As with many hard money lenders, we will not lend more than 65% of the property’s ARV.
Past clients have either used savings, HELOCS, credit cards, or loans against insurance policies; some have taken on partners. We encourage our clients to factor in all expenses and make sure it is financially wise to take on this type of risk.
Form an LLC
In real estate investing, projects rarely go exactly according to plan, and complications can arise very quickly. Setting up an LLC (limited liability company) protects you from personal responsibility for debts or liabilities incurred during real estate projects. LLCs are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship.
onestop.wi.gov
Forming an LLC is a wise business choice, and a prerequisite for applying for a loan from Black Brook Capital.
Fortunately, the State of Wisconsin One Stop Business Portal guides you through the fairly simple process of forming an LLC. The online LLC filing costs $131 (non-refundable), which includes a $1 portal fee.
Apply
Complete our Preliminary Loan Application. After we approve your loan, you can make an offer on the property.
Conclusion
If your knowledge of real estate financing is limited to conventional mortgages, a hard money loan may seem scary. But it’s really a straightforward process.
If you can show us a property with solid potential and convince us that you have the ability to rehab it and make it profitable, we want to talk to you.
Contact us today. As your partner, Black Brook Capital will provide expert guidance to turn your vision into reality.
