Qualifying for a hard money loan isn’t as hard as you might think. In fact, did you know that most hard money lending companies won’t even run a credit check on you? Really, it’s true; however, they will probably check to see if you have decent property to put up for collateral just in case you default on the loan.
Ask Yourself These Questions Before Applying For a Hard Money Loan
- Will I Be Able to Make My Payments?
This is probably the most important question you can ask yourself, because remember, a hard money loan is considered a short term loan and can have high interest rates. Be sure to really familiarize yourself with the hard money lending process before making a quick decision.
- What Will I Do If My Property Doesn’t Sell or Sits On The Market For a Long Period of Time?
This next question is also very important because you should always have a backup plan in case you fall face first on your investment property (no pun intended). Do you have assets you can liquidate in case you need to pay off your loan? What about cash on hand? Also, think about if you will be in a comfortable position if you have to sell any existing properties you own to keep up with your hard money payments.
- Do I Feel Comfortable About The Property I Purchased?
When deciding to flip a house for a profit, dollar signs always seem to enter people’s minds first. But, please also ask yourself if you think your investment property has what it takes to sell quickly and for a nice chunk of change. And please remember, don’t ever just go out and buy properties because they are extremely cheap. Usually, there are 101 reasons these properties are listed at abnormally low price points.
For example, I once looked at a property I wanted to flip about 5 years ago that was listed at only $13,000. Since I was a house flipping newbie at the time I thought I found the deal of a lifetime because it looked nice from the outside and it was in a great area with a pretty decent median income. Boy I was wrong and let me tell you why. After calling around to get someone to let me in to see the property I had found out that all of the plumbing had been stripped, the electrical system was in shambles, and the house would probably never be fit to sell because the previous owners had let black mold literally take over the entire house.
To make a long story short, several people told me if I would have to tear down the house if I decided to buy and that I would have to completely re-build. As property investors, we all know that if a house has to be tore down and completely rebuilt, then chances are, there is absolutely no money to be made from the property and to run away from it as fast as possible. So please remember, if a property is listed at a price that is too good to be true, then you probably don’t want it.
- How Much Money Will I Realistically Make From This New Investment Property?
Question number three is also extremely important and this goes back to you being vigilant when doing the initial inspection of the house (read our other hard money guide about this here). Look out for red flags like a leaky roof or electrical wiring malfunctions as I talked about earlier and it also wouldn’t hurt to make sure the heating system is in good working order, too. The more expenses you add to a property will deduct from your profit margin and could end up making a property a total waste of time.
If you have been following along with our hard money lending blog, then you probably also know we recently put out a separate guide on other great questions you should ask your hard money lender. If you haven’t read it already, we highly suggest you take the time out of your day to do so. Educating yourself about the hard money lending process can be an extremely daunting task at first, but it really does pay to learn all of the information you can.