In the “fix and flip” industry, finding a reliable source of capital that can keep up with the fast-paced nature of the Los Angeles housing market can prove to be a challenge.

It has led to high demand for hard money lenders that service Los Angeles. Often unable to meet the strict conditions of traditional lenders such as banks, Los Angeles real estate professionals can find themselves missing out on great deals and profits because of lack of funding.

This post compiled by the Los Angeles hard money lender experts at RTI Bridge Loans will show you how to use hard money loans to buy an investment property in the Los Angeles area.

How Hard Money Loans Work

A hard money loan (asset-based loans or bridge loans) is a specific mortgage loan that is particularly well-suited for the real estate industry. It is a short-term, non-conforming loan usually offered by individuals or private companies that accept property or an asset as collateral.

The term “hard” in hard money refers to the property or asset backing the loan’s value. Should a borrower default on a secured loan, the lender takes over ownership of the asset to recoup its losses.

Hard money loans are a standard in real estate investing since they are considered more flexible than conventional lenders. Since hard money loans require borrowers to use an asset as collateral, private lenders are often more willing to work with investors with a bad credit score or more modest cash reserves.

Since hard money loans do not come from traditional lenders, they come with a less stringent and faster approval process, making them ideal if you need to make a real estate purchase happen quickly.

Common fees for hard money loans include:

  • Origination fee: Usually 1% to 3%
  • Broker fee
  • Application fee
  • Underwriting fee
  • Doc prep fee
  • Processing fee
  • Funding fee

Why Consider Los Angeles Hard Money Loans?

Is a lack of funds limiting you from investing in the Los Angeles real estate industry? Don’t let it!

A significant benefit of using hard money loans for real estate investing is that they don’t require the same underwriting criteria traditional lenders use.

When reviewing a loan application, banks and other conventional lenders look at the borrower’s credit score, revenue, debt-to-income ratio, and many other factors. Although hard money lenders also look at these elements, the focus is mainly on the asset’s value, the overriding factor for acquiring hard money loans.

The main reason why real estate investors may turn to hard money loans is when a conventional loan or mortgage application fails or to avoid the lengthy approval process for a traditional mortgage. A mortgage usually takes more than a month to secure the funds and purchase a property. With hard money loans, it is possible to close in just a few days.

Hard money lenders in Los Angeles provide financing options that are in perfect harmony with the needs of Los Angeles fix and flip investors. They offer shortened timelines and consider the property’s value as loan collateral.

What Type of Investment Property are You Looking for?

So, what are hard money loans used for?

Hard Money Loans

1. Fix & Flip

Fix-and-flip, also known as house flipping, is a type of real estate business model where the investor purchases a property, renovates it, then sells it at a profit.

House flippers usually buy houses at lower prices on an “as-is” basis. That means that the seller will not address any issues regarding the house’s physical condition. It often means that the property is distressed, although not always.

Some of the factors that motivate an owner to sell their property to a flipper include:

  • Turning an unwanted asset into cash quickly
  • Avoiding home improvement expenses
  • Cutting losses
  • Alleviating the pain of negative life circumstances

Once house flippers acquire a property, they will begin the renovation process. While most house flippers hire contractors to complete the work as needed, some will do it themselves to cut costs.

Once house-flippers are done with the necessary repairs, they will put the property up for sale.

Los Angeles house flippers often seek hard money loans to secure future projects and provide the project as collateral. Although hard money lenders charge higher interest than traditional financial institutions, they are much more flexible and usually finance the renovation in addition to the cost of purchasing a property.

Also Read: The Complete Guide To Fix And Flip Loans

2. Single-Family Rentals

Some real estate investors seek hard money loans to purchase single-family rentals. Such acquisitions are funded similarly to property flippers but are often later refinanced for a longer term. It is to ensure the best value for the property. It would be best to refinance the property in 12 to 36 months to pay off the hard money loan.

Usually, investors buy a house at a low-budget or affordable locality and renovate it to attract new tenants. By investing in single-family rental homes, you get the liberty to determine your profits in many ways.

Some of the benefits of buying single-family rental properties include :

  • Huge tax write-offs
  • A passive rental income
  • Long-term capital appreciation of real estate

Single-family rental homes are easy to purchase and hold for new Los Angeles real estate investors. Investing in single-family rentals can deliver instant returns in the form of rent, plus the property’s long-term appreciation. It is a great way to prepare for your retirement, as once you break even, this type of real estate investment is a good source of regular passive income.

3. Multi-Unit Rentals

Hard money lenders aren’t just valuable when acquiring single-family rentals. Hard money lenders can be especially useful in offering to fund multi-unit apartments. They can be a great way to finance a real estate project if you don’t currently have the money for a down payment.

Financing a duplex or multifamily home can be a clever way to build wealth. Passive rental income is the ultimate goal for many real estate investors seeking financial independence. The financing options available depending on the number of units.

Properties with four units or less are usually considered residential, and these can be funded by Los Angeles hard money lenders. If you need to purchase properties with more units, you’ll have to look for a suitable Los Angeles commercial property lender.

Even though the interest rate and origination fees for a hard money loan will be much higher than a traditional mortgage loan, hard money is all about math. You need to figure out if the property’s loan-to-value ratio (LTV) can meet the criteria set by the hard money lender.

If the loan to value ratio is 65% or lower, you have a good chance of striking a deal, especially if you have found a multifamily property that has all the earmarks of a steady source of cash flow.

Some of the many benefits to investing in a Los Angeles multifamily property include:

  • Recurring Income
  • Income Diversity
  • Low Maintenance
  • Multiple Income Sources
  • Performance-Based Financing

Do You Need a Loan for Your Los Angeles Real Estate Project?

The demand for high-quality yet affordable housing remains constant in Los Angeles – especially as an influx of students, young professionals, and job hunters are attracted to the state’s metropolitan areas. It becomes increasingly intense in the Los Angeles real estate market, with baby boomers choosing to stay in their homes longer, further limiting the available supply of homes.

These trends feed a thirst for property in the metropolitan areas, putting hard money lenders in Los Angeles in high demand. And, when homes do become available, the consumption rates (how quickly the home is purchased) are super fast.

That said, it’s easy to understand why Los Angeles private money lenders are experiencing an increase in activity as more real estate professionals are looking to “fix and flip” real estate within Los Angeles and surrounding cities.

However, successful flipping requires a short timeline to reduce holding costs. Hard money lenders in Los Angeles facilitate short holding periods with swift financing processes. Instead of spending months waiting to receive financing from a conventional lender, hard money lenders in Los Angeles can streamline funding to ensure the deal runs smoothly for maximum profits

The Benefits of Hard Money

Here, we have listed the benefits of leveraging hard money loans for your next Los Angeles real estate investment:

  1. As long as the loan amount is equivalent to the property’s value, they rarely say no
  2. They can be closed quicker than traditional loans as they do not use an underwriting process
  3. They are flexible and convenient
  4. Financial position is not the primary concern
  5. The borrower provides collateral, so the lender doesn’t emphasize payment
  6. Get referral business

How Can an Investor Find the Best Hard Money Lender?

Speed, convenience, and flexibility are becoming all-imperative in the Los Angeles real estate market. That’s where hard money lenders excel.

When a property doesn’t fit a conventional lender’s criteria, Los Angeles hard money loans may be able to save the day. But how do you find a suitable investment property lender in Los Angeles?

A good hard money lender is one of the most incredible resources a real estate investor can have.

  • Communicative – Get the deal done smoothly
  • Diligent – No surprises at closing or after the loan is in place
  • Flexible and Adaptable – Make the deal work for everybody
  • Fair – A win-win situation is best for all parties
  • Trustworthy – Values long-term partnerships
  • Experienced – The culmination of all the others

With over 30 years of experience in hard money lending, RTI Bridge Loans epitomizes all six of these qualities. We have established an illustrious reputation in the Los Angeles real estate community for being very responsive, efficient, and providing competitive terms and structuring to fit individual situations.

For more information, don’t hesitate to contact us online or call our experts at (562) 857-2285 today!