Arizona Hard money lenders invest in risky deals that banks won’t touch, like house flips. In browsing the terms offered by various hard money providers, the double-digit interest rates might shock you. Take a deep breath, as there are some tactics you can use to lower the cost of your loan.
You ask why the cost of hard money is so high.
• It is short-term: No wants to pay 14% interest on a $250,000 loan for five years. This high rate incentivizes you to pay your loan back as quickly as possible. But why do these lenders want their money back so quickly?
• High risk: Because of the risk involved with flips, there’s no guarantee for you or your lender that you are going to make money. The high rate ensures the lender their going to make some return on their investment.
Because of the risk involved, hard money is expensive, but what if you could avoid paying such a high rate in the first place?
You can employ the following tactics to help you negotiate a lower interest rate.
• Find a lucrative, low-risk deal: The rule here is to find a house which you can secure at a low price and then assure your lender about its potential using comparable sales. For example, say you found a foreclosed house which you can get at a steep discount. The house might be selling for $150,000 while similar homes in the area are going for $300,000. A quick walkthrough reveals that it doesn’t need much work. You estimate the cost of repairs will be about $15,000. The house needs a few repairs, and its resale value is backed up by hard data. These are some talking points you can use to negotiate a lower interest rate with your lender.
• If you have experience, talk about it: Given all the risk that comes with flips, lenders prefer those who have a proven track record of successful projects. Talking up your expertise or even offering your lender business in the future might help you get a lower initial rate.
But even if your hard money provider doesn’t offer you a lower rate, here is a little rhyme that can help you
• Pay it back ASAP: Finish work in a few months and you can minimize the cost of your loan. Remember, you pay interest on a monthly basis, so if you finish work in a couple of months you reduce the cost of your loan, regardless of how high the initial rate is.
Hard money is really your only option if you want to flip houses. Almost every flip is funded by hard money, and on average every flip earns a tidy $30K in profits, even though these lenders charge double-digit interest rates. You can make hard money less expensive by negotiating a lower rate with the strategies above in addition to paying it back ASAP.
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.