Are you new to real estate investing? If the answer is yes or no read this article to find out if your deal is fundable or attractive to hard money lenders.
If you want to simplify hard money and almost guarantee that every deal you bring in will get funded, ask yourself this one question:
“If I were the lender, would I lend money on this deal?”
If you look at a deal and critically think whether or not you would accrue the risk involved, you can better understand if it’s worth lending on said deal.
Now, that might seem too simple, and if you don’t understand how funding works, the question isn’t going to do you any good. But, if you understand how to make sense of the numbers, and if you know what constitutes a good deal, then you’re more likely to make sense of why a deal isn’t getting approved.
Don’t get disillusioned by lending. Understand the makeup of a deal worth lending on.
That being said, let’s help you identify what constitutes a good deal.
First, you want to have a deal that is HIGH YIELD and LOW RISK.
How do you calculate this?
You need several numbers in front of you; the purchase price, the estimated repair costs, the ARV (after repair value) and the maximum percentage of the ARV a lender will give you for the project. This could be 55%, 65%, or other. So, if you have found a house that has an ARV of $100,000 and the purchase price is $70,000, that’s 70% of the ARV and you aren’t going to get a loan to cover the full amount let alone the repair costs. 70 cents on the dollar looks like a good deal until you factor in repair and holding costs.
Start with the final selling price and work backward to deduct the selling cost, profit margin, renovation cost, and buying costs. Don’t forget to factor in holding costs and margin for error. You figure out your MAO (maximum allowed offer) by first determining the ARV of a house.
Though you don’t need a background in real estate to flip a house, you do need to make sure that the time and money you are investing (whether the money is yours or a lender’s like at Montclaire Capital) is well spent and maximized.
