Foreclosure, Short Sale or Bankruptcy on your credit record? When it comes to getting a loan for investing in real estate fix and flip projects the borrower’s credit is never a deciding factor. The reason for this is that the loan is an asset based loan, meaning the lender is secured by the value of the underlying property.
An asset based loan means that the borrower is being loaned money to buy a property that the lender can repossess if the borrower misses any payments.
This provides a great opportunity for someone who has had credit issues in the past to be able to get funding and quickly turn a profit. There are very few legitimate investment opportunities out there that provide the possible high rates of return, opportunity for seat equity and are also open to someone with poor credit history.
Why Would I Pay High Interest Rates With Hard Money?
In order to close on these foreclosures you must make a cash offer within 24 hours of the closing bid. Unless you have this amount of money laying around you won’t be able to get financing for that amount on such a short notice. It is important to consider that you will only be paying that interest rate for a couple of months as you are repairing and getting ready to sell your property. This creates an extremely powerful tool for flippers when you look at their alternatives.
The Investor’s Time Value of Money.
When flipping a real estate investment time is money! Fixing your investment up and selling it quickly is the name of the game and even though you are being charged 18% interest with most hard money lenders it is still often the cheapest way to flip an investment property. For example, If an investor were to invest 50/50 in a flip with a friend and they profit $20,000 that means the first investor only profits $10,000. Now had that same investor used a hard money lender, depending on the time frame (lets say 3 months), then he would only have paid about $3,600 to the lender and profited $16,300 a total increased profit of $6,300 over investing with a partner.