The correct hard money lender is critical for your success as a Southern California real estate investor.
While it is easy to make the mistake of rushing to do business with the first hard money lender who promises the lowest rates, ensure that you understand what the right bridge loan lender means for you and your expectations of a successful partnership. With the popularity of house flipping in the region hitting an all-time high, Southern California hard money lenders have taken note and assigned a dedicated category of loans just for fix and flip investors.
Before guiding you on choosing a hard money lender that is right for your level of experience, entrepreneurial style, and financial strength, what exactly is a hard money loan, and how do you find the right hard money lender?
Table of Contents
What is a Hard Money Loan
Hard money loans, otherwise known as asset-based loans or bridge loans, are a specific type of short-term asset-based loans through which a borrower acquires financing secured by real property.
Hard money loans are usually used in real estate transactions when the lender is an individual or company looking to invest in property, whether building, renovating, or flipping.
Why Hard Money Loans
Unlike traditional lenders such as banks, bridge loan lenders don’t have a strict set of requirements for borrowers. You do not require multiple proof layers that they will pay back the loan.
Instead, hard money lenders evaluate the borrower’s situation, plan, and exit strategy, all included in the borrower’s executive summary. Hard money lending is the road to take when you act on a property fast. Approval will take far less time and requires less from applicants in terms of documentation.
Before You Partner With a Hard Money Lender in Southern California
If you’re new to hard money lending, you might have heard stories of fix-and-flip loans that didn’t turn out the way the borrower thought it would. Since all hard money lenders are different, it might not be obvious to know where to begin.
Here are three questions to answer when choosing the best hard money lender:
Sure, fees and terms are essential considerations. However, ask these crucial questions about the borrower-lender relationship when choosing between the best Southern California bridge loan lenders for your needs.
- Does the Lender Meet My Standards?
- How do I decide which is the best hard money lender for my needs?
- Will this lender add value to my team?
So, how do you choose the best hard money lender for your Southern California fix and flip business?
Tips for Choosing the Right Southern California Hard Money Lender
» Learn More About the Hard Money industry First.
Have you ever worked with hard money lenders before?
If not, it is always a good idea to familiarize yourself with the basics of the industry before making a contract for your first private loan. Don’t be afraid to qualify Southern California hard money lenders much the same way they qualify you as a borrower
Many fix and flip investors think that all lenders are pretty much the same. They charge similar points. They offer similar products. They qualify similar borrowers. While the core principles are the same, the underwriting criteria might vary from lender to lender.
Hard money lending offers both lenders and real estate investors several indisputable advantages. However, it works differently from conventional financing you might be used to, and you need to get used to those differences.
» Determine Your Own Loan Needs
Before beginning your search for the best hard money lenders, you first need to understand your precise needs. It is because a variety of diverse real estate loan types are available for your hard money financing needs.
Are you searching for funding for your next investment property’s acquisition and construction costs? Then you’ll need to look for fix and flip loan specialists.
Do you currently have a loan costing you too much, or is it not meeting your unique needs? Then look for the best Southern California refinancing lender for funding to pay off your existing loan
Besides this, you should be able to identify which hard money loan presents the least risk for you and be prepared to negotiate for the best possible rates and terms.
Here are a few common questions that you can expect every lender to ask you:
- How many projects have you completed?
- Do you have enough cash reserves?
- Where is your credit history?
- Have you had any foreclosures?
- What is your exit strategy?
Remember, hard money lending is a two-way street. You’ll need to prepare for your project pitch adequately.
» Choose a Local Private Lender
The number one tip when choosing a hard money lender: go local.
Having a reliable local hard money lender could be the difference between landing a property or watching someone else end up with it. It is because your local lender has experts on the ground and in the area today!
If you’ve got a local property that you want to close on quickly, local lenders know the market, the location, as well as the costs of completing work in that area. It makes it easier and faster for them to decide what terms they can offer you for financing on the project. Also, a lender with expertise in the local market can steer you away from unprofitable properties since their success relies on your success.
Another factor when choosing a lender that often gets overlooked, is what happens after closing or when you need to change the terms or pay off your loan? For nationwide and online lenders, that becomes complicated and time-consuming.
» Consider Reputation and Experience
Finding the right money lender is one of the most critical decisions to make while investing in commercial real estate, as it directly impacts your overall investing success. That’s why we insist that you shouldn’t rush into finding the best Southern California hard money loans considering only a few factors, such as the lowest rates in the market or partnering with the first lender who agrees to a pre-approval loan.
It has been proven time and again that the best way to choose the right hard money lending agency for you is to start by reading reviews and looking for referrals. It is critical to choose the right private money lender because identifying scams in the hard money loan industry can get challenging, and with every other lender promising you the world only to change the terms at the last moment – it has become all the more challenging.
When you meet your private lender, ensure that you ask for reviews from previous customers. No matter how smooth-talking and persuasive their salesperson may be, the best way to find out more is to learn from their actual clients.
Finding the right lender isn’t as simple as it may seem, and it’s vital to understand that somebody else’s best private loans lender might not be your right money lender.
» Check for Licensing
The Southern California bridge loan lenders are licensed by California’s Department of Real Estate. That aside, your ideal lender should possess a valid Real Estate Broker License. Be sure to check if any complaints have been filed against that license
» Ask the Right Questions
Once you shortlist several hard money lenders, the next step would be to ask the right questions.
What do we mean by this? It would help if you asked the basic fundamental questions such as:
- The terms and conditions of the loan
- The loan term
- How fast you can close.
- The loan origination fees
- Early termination clause
Please do not fall prey to the private money lenders in Southern California who are only trying to rope you in and sell you their product. Choosing the right lender can massively impact your investment success, so you must proceed with patience.
» Choose the Best Value Over the Lowest Rate
The lowest rate loan makes sense in terms of being cost-effective.
Yes! However, it is essential to understand that while hunting for the best loan in the market, your primary focus must be to find the best value rather than the lowest possible rate.
Should you dig deeper, you’ll realize that most low-rate loans come with huge hidden costs, which can hugely bite into your profits after you start paying your monthly installments. Therefore, look at your loan as a long-term period and chase the best value in the long run.
Slightly lower rates don’t beat what you stand to gain from a reputable, transparent, and experienced hard money lender.
» Keep an Eye Out for Red Flags
Like every other industry, private lending has its fair share of unscrupulous players.
So, what are the tell-tale signs of unscrupulous hard money lenders? Here is a quick summary:
- Asking for hefty upfront fees
- Unusually low rates
- Requesting the funds to be sent directly to the lender
- No borrower contribution requirements
- Opaque lender location
If the hard money loan terms seem too good to be true, they usually are. Looking for authentic and genuine private lenders is very important. Therefore, you should thus be very cautious in keeping off the red flags.
Hard money loans could be a great option when you need fast funds or do not qualify for traditional loans.
If you’re searching for hard money lenders in Southern California, look no further than RTI Bridge Loans. At RTI Bridge Loans, we have a proven track record of success for reliable financing. Over the years, we have helped countless commercial real estate professionals and fix and flip investors to achieve their financial goals with our Southern California hard money loans.
We can give you the financing you need when you need it. Contact us today at (562) 857-2285 for any of your loan financing needs. We look forward to helping you reach your goals now!