BEST Hard Money Lenders For Real Estate | Hard Money Loans Explained

This is real time stuff that’s happening right now in today’s market. Your buyers the fix and flippers have hard money lenders giving appraisals and they’re not appraising. It’s happening real time. This isn’t just the owner occupied market that this is happening is happening in our world too. So you need to know what to do with it.

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Yo, yo, what is up everybody what is up? Welcome back to the science of flipping podcast. I’m your host, Justin Colby. Now if you’re not yet subscribed to my YouTube channel, get over to youtube.com//JustinColby, and subscribe to my channel as I drop at least five videos a week. That’s at least five videos a week. If you’re listening to this on iTunes, please give me a five star review as both the iTunes gods and the youtubes gods really appreciate this. Now, let’s hit it dead on the deals are falling out of escrow. Right now. It’s real. I just had another student talk about one of the deals that he had closing today that the lender came back and told them they could not fund because appraisal came in too low. It’s a real thing that’s happening right now and for you fix and flippers who are listening to this, make sure you pay attention to the very end. So I can give you my words of advice. And if you are just getting started or trying to figure out how to get your first deal. Listen very carefully all the way through because there’s going to be golden nuggets, I spread out on words of advice how to overcome this in today’s market. Now if you’re a real estate investor or an aspiring real estate investor, I’d make sure that you subscribe to the channel and hit this like button, as it always helps me create more content. Now this is very real. We all have heard of the interest rates that are going up and most people are considering that to be harmful to the owner occupant buyer, right we’re hearing about all these reports of more listings coming to market more homes on the market than previously. While all this is true, most of that content that is being put out there is in the space for the owner occupant, very little of it is for us, the real estate investors. And many of you guys out there are hustling and continuing to do a great job. But your business, my business and the industry is changing real time. We are very much in the middle of a market correction. Many of you guys have heard of we’re in the middle of a recession. Well, I actually agree with you. But there are some very clear pivots you and I as real estate investors need to make and there’s some things we just need to be aware of. The first thing that you need to be aware of is absolutely happening right now is lending is starting to get restricted, not just for the owner occupant, but also for investors as well as owner occupied homeowners. The reason why it’s happening to investors is as the Fed interest rates hike, that means all lending, both consumer and bank lending is gonna be going up. Now what that means for maybe some hard money lenders is that they’re going to be more tight on their budget to be able to buy meaning they’re likely going to be doing inspections, they’re likely going to start doing some appraisals themselves, and they won’t be able to fund if the numbers don’t come in. Now, appraisals and appraisers are becoming more conservative, they’re actually giving values much lower than they were up into this point. You could guess and try to figure out whether it’s because some of the hedge funds stopped buying or what’s going on here. But myself and others, especially the student I just talked about, have real time seen hard money lenders, not meant typically for owner occupants come in and appraise the properties that your buyer if you’re wholesaling it off and appraise the properties lower than what is actually the right value as a moment in time. Now that hurts everybody in the transaction. It hurts the seller, the wholesaler and the fix and flipper or landlord who wants to buy the home. It hurts everyone involved in the transaction. There’s some things that you need to be doing real time to counteract that. First and foremost, if you are a wholesaler, I would really encourage you to make sure the earnest money is hard immediately make sure that they deposit their earnest money. The second that they sign the assignment contract. I won’t even sign my assignment contract until the earnest money is in and then I’ll sign my side of the assignment contract and deposit it over to the escrow along with everything else that is needed right, now in that assignment or part of the requirements can be a way waiver of appraisal that they need to waive all appraisals going into this property or this purchase, meaning they’re going to have to come out cash. If the appraisal doesn’t match the sales price or higher now, that is if they get an appraisal, sometimes they will sometimes they won’t. But I am seeing a lot more hard money lenders actually go after an appraisal when lending these days because of the restriction going down on the market. You see a lot of these hard money lenders, they were in big during the great recession back in 08. They don’t want to feel that in case something like that happens again here in 2022 2023. My guess is it won’t happen that way. But there is going to be a course correction. So they want to make sure as a hard money lender that their borrower is borrowing at the right price. Well as someone who bought my own home waiving the appraisal, it’s actually very easy to write it into your assignment contract, waiver of appraisal or waiving of appraisal means it doesn’t matter where the home comes in at your buyer is gonna come out of pocket to make sure the deal is done. Now, they can technically still walk away if the numbers too far off, but they would lose their earnest money as their earnest money is hard non refundable. Now, the thing that is obvious, but I’m still gonna say it anyway, because many of you probably are still trying to figure it out is now is the time that you will likely need a deeper discount. I don’t care if you’re going direct to a homeowner and buying it for yourself. I don’t care if you’re wholesaling it, I don’t care if you’re buying as a landlord, you likely need a deeper discount right now, because of all the moving parts of what’s happening in the real estate market right now. Not only is interest rates going up, lending is starting to crunch in the investor space, because there’s just so much uncertainty. We saw this back when COVID hit back two years ago, we saw this lending crunch for about 30 days until they realized everything was actually about the same. And they opened it back up to what we typically would see from hard money lenders. But at the end of the day, I would still look at the exit price if you’re a wholesaler or flipper. And this is where the biggest pivot is going to be. This is what you want to hear. By the way, if you’re liking this video, make sure you give it a like and make sure you subscribe. Now, I’ll tell you the biggest pivot is you don’t necessarily have to worry as much about the buyer price. But I would use your exit ARV, I would take a roughly 5 to 10% hit on what you think it would be probably a lot closer to 10 than 5. So if you think the ARV is 350, I’m actually gonna say is probably closer to 325. Now, that’s just rough bubba math. But what’s happening is the appraisals are coming in late, so you’re likely going to be selling at a lower price. Again, the hedge funds aren’t buying as aggressively right now. So they’re not using, you know, they’re not being able to build up this market like they have over the last several years. Now there’s been a pause on some building, there’s a pause on the hedge funds, you can’t just go out and speculate that the market is going to hit some number, because well, it’s been going up 10 to 20%, year over year anyways. So of course it’s going to hit there. Well, when the hedge funds stop they’re buying, they’re not moving that target as quickly through these neighborhoods. So you need to adjust as needed. So my big takeaway for all of you out there is yes, I would say be more aggressive on your buy price, the contract price that you’re buying yet be more aggressive. But really make sure you understand how you’re exiting. If you yourself, were flipping it, or if you’re a landlord, make sure the numbers are going to make sense and don’t speculate as maybe you have been over the last couple of years.

I would I rather say hey, we’re not going to hit that number. So the exit price is 325 instead of 350. Does this deal still make sense? Because if it does, then you’re going to be in a safe spot. If you’re a flipper, and you’re borrowing hard money loans, and you’re having appraisals come in light, and then you’re having to back out of the deal. Just understand this should be something that you’re aware of now, you need to know whether your hard money lender is going to do an appraisal or not. And then if they do an appraisal and it doesn’t work out, how are you positioned right? Is your money non refundable, which mostly if you’re buying from a wholesaler, it’s going to be non refundable. How do you make sure that you’re buying the property safely? I would just be a lot more conservative than I was 60 90. You know, a year ago, it’s going to be a more conservative market right now and that’s gonna be okay, because there needs to be some course correction. But if you’re a wholesaler, and you don’t want these fix and flip buyers to cancel escrow the day of closing because their lender does not because they want to because their lender does, then you need to make sure their earnest money is in non refundable, and they do an appraisal waiver, right that they waive whatever their appraisal comes in just like you would if you’re buying your own house, there’s an appraisal contingency, so I had to waive my appraisal contingency. Same thing you can do as a wholesaler, have your end buyer waive their appraisal contingency. Some may not care, some may care. But this is the state of the market, you don’t want to get caught with your hand in the cookie jar, because your buyer can’t perform. Now you needed to go with the seller and try to figure out how to repair this. That’s not the position you want to be in, you want to be in the position that the buyer is very aware that they can’t go off the appraisal, if there’s going to be an appraisal that they are buying the property as is. And their earnest money is hard. At that point. If they don’t perform, then we are talking about something totally separate. And you can, you know, go down the path of suing someone which I never never recommend. I don’t love that idea. But you know, nonperformance is a very real thing, or they lose their earnest money and you try to repair the relationship with the seller, right? Again, this is real time stuff that’s happening right now in today’s market. Your buyers, the fix and flippers have hard money lenders giving appraisals and they’re not appraising. It’s happening real time. This isn’t just the owner occupied market that this is happening is happening in our world too. So you need to know what to do with it. The first thing you need to do is smash that like button and make sure you’re subscribed. The second thing you need to do is make sure that you’re protected on all areas, right. If you’re wholesaling, then make sure you’re protected that that buyer, you know doesn’t either have an appraisal done and or is waiving the appraisal as a reason to close on the property.

Hopefully this makes some sense. Hopefully that gives you some ideas on how to protect yourself. Deals are still flying. I’m still doing a lot of deals each and every week. You can too. Do not be scared. This was not an episode to scare you. This is actually something that is more informative so that you can continue to do a high volume of deals and keep rocking it out. Again, if you have not yet started following me on Instagram, go to thejustincolby. Make sure you follow here on YouTube. Stay tuned. Peace.