Hard Money Facts

The coronavirus outbreak— and the subsequent turbulence of the stock market—has revealed stark differences between private lenders’ customer service models:

1. There are hard money lenders that rely on Wall Street to buy loans they have placed on a warehouse line. They treat loans as transactions.
2. And, there are lenders that have used their own balance sheet to fund loans. They treat loans as relationships.

Did your lender back out of your loan? Are you struggling to get them on the phone? Or get a straight answer to questions when you do? This is a sign your lender uses a transactional business model. This is also a sign that now is the time to find a hard money lender with a relationship business model.

“A lot of our competitors have said they’re relationship partners, and coronavirus was the end of that relationship.”

COVID-19 Reveals the Downfall of the Transactional Business Model

Private lenders with a transactional business model will tout both their customer service and the expedience of their capital, which they may deliver when Wall Street will buy up their loans. But what happens to customer service when the expedient capital goes the way of Wall Street’s fear? It evaporates and the very nature of a “relationship” evaporates with it.

In the words of Paul Jackson, Principal of Residential Capital Partners, “A lot of our competitors have said they’re relationship partners, and coronavirus was the end of that relationship. We want to be the lending partner of choice for our customers in good times and uncertain times.”

Coronavirus has spread across the globe in rapid time, disrupting nearly every industry in its wake. House flipping is no exception. Real estate investors are now forced to navigate new challenges to secure funding. Banks are preoccupied and most hard money or private lenders are either sidelined, denying loans or raising interest rates and cash reserve requirements. The clock is ticking—what do you do?

Take a deep breath. You’ve landed in the right place.

Long before COVID-19 came onto the scene, Residential Capital Partners made the decision to run our business with refreshingly straightforward terms: No money down. 100% funding up to 70% ARV. 10% interest. 3 points rolled into the loan. 9-month term.

We’ve always prided ourselves on our transparency and now, more than ever, investors like you need a lender that can deliver on their promises, so you can keep making progress towards your goals.

So, true to our word, here’s a transparent look at what’s happening in the real estate flipping industry, and what you can expect from us:

Scott Gurten and his partner Nick Ferroni have funded five house flips through Residential Capital Partners and counting. Two were house flipping success stories that caught the attention of Philadelphia Magazine.

Their house flip on South 45th street was news-worthy due to Scott and Nick’s masterful renovation. Like many homes in the Northeast, part of the townhome’s charm was its history. Scott and Nick wanted to preserve the home’s character while modernizing key features.

1846 Latona St., Philadelphia, Pa. 19146 | Bright MLS images via BHHS Fox & Roach Realtors

In Scott’s words, “We finance our flips through Residential Capital Partners because they offer 100% financing to keep my up-front costs low. This creates opportunity and flexibility with my cash during the investment period, because I don’t have to put large down payments down.”

With more cash in their pocket, Nick and Scott were able to make updates to the front of the home while preserving the original 1800s woodwork on the façade.

Main entry

Now that you’ve used fix and flip financing to renovate your most recent rental property, it’s time to put it on the market.

The average renter tours nearly three properties over 2.5 months before making a decision, according to Zillow’s 2019 Consumer Housing Trends Report. Don’t let an empty rental property cost you even more money on your investment property loan.

Having a plan to find reliable tenants is as important as securing funding for your investment property. Use these five marketing tactics to catch the attention of high-quality renters, so you can start getting a return on your investment immediately after rehabbing your rental property.

1. Take Professional-Grade Photos. 

This is non-negotiable. Why? A listing without photos is too easy to ignore. Plus, listings with high-quality images get 94% more views, according to QuickSprout. Also, intriguing photos could increase the rental price of your fix and flip between 1-7%, according to a Redfin study examining the impact high-quality photos had on house prices.

If you don’t have the time or budget to work with a professional photographer, consider a DIY approach. Smartphone cameras have come a long way — but you need to know how to use it.

Finding a trustworthy fix and flip lender can be the start of a beautiful, mutually beneficial business relationship.

But a misleading lender can lose you time and money. Lenders don’t like to turn away business. So, if your deal isn’t a solid, unwavering “yes,” you may hear, “I’ll see what I can do” or “we’re still working on this.” Sometimes, this templated response comes long after the initially promised deadline. Why? Often, the lender is working behind the scenes, trying to make a deal happen for you — even if it’s in the form of an exception.

Bottom line: Don’t leave your investment property loan pending on empty words. Look for a lender who will give you a quick answer and an honest assessment of your deal.

Before you sign — or pay — anything, look for these three qualities in rehab lenders.

#1. They’re Available.

Questions can arise quickly in this business, and you need answers ASAP. Getting in touch with your lender should be easy. A good lender will give you multiple points of contact, and they’ll answer your questions in a timely manner.

#2. The Terms of the Loan Are Clear.

Having clear, easy-to-understand loan terms is simply good business. A trustworthy lender will outline any fees and loan terms before you get to the closing table. Murky fix and flip loan terms can lead to unrealistic expectations of a deal. A reliable lender will willingly help you understand what you’re signing. 

For many real estate investors, rental properties deliver a dream come true: passive income. Done right, your rental property will produce mailbox money. Your tenants pay rent, you provide maintenance here and there and your property appreciates while you enjoy the financial security of a cash-flowing asset. Even more, you can have pride in knowing you put your money to work for you.

But, to do it right, you’re going to need to do your homework and watch out for common flipping mistakes so you don’t fall victim to a bad rental property investment. Here are the 4 most important things to consider when investing in rental properties:

1. Invest in Neighborhoods You Understand

Warren Buffet famously proclaimed, “I only invest in things I understand.” The same rule applies to the single-family rehab and rental business: invest in places you know and understand. You’ll be familiar with details others might overlook, such as the rumored expansion of a large corporation nearby, or the addition of an upscale grocery store around the corner. How walkable is the area? What is the school district like? Is there a college nearby?

For help on your journey from rehab to rental, download this free investment rental property neighborhood checklist

Conventional wisdom says that late spring and early summer is the best time to sell a home or an investment property, but real estate investors and hard money lenders alike know that winter poses its own special opportunities, and that the colder months can be an ideal time to make your move.

Aside from the fact that hard money loans or property investment loans are also available in winter, there are other reasons why the winter months could be prime time to finance a house flip.

1. Less Competition From Home Buyers

For most people, winter is a time for family and holidays. Their cash is likely to go to presents and travel. Any major moves, such as the purchase of a new home, are often put on hold.

Because of this, you can approach sellers in the winter months knowing that the market is slower than usual. In the US, the annualized price of the average home can fluctuate 5-7%, depending on the time of year. In active markets like Dallas, the fluctuations have been recorded as high as 12%. And, almost without exception, the point at which prices hit their lowest level occurs during winter months.

2. The Timing From “Fix to Flip” Is Perfect.

Statistically, the best time to sell a house is in May. Houses sold during the first half of May typically sell 18.5 days faster than other months and go for 5.9% more money. On a $200,000 house, that could be a cool $11,200 bump in profits.

If you purchase a property in December, you can shoot for a completion date of May to bring your renovated property to market. It’s as simple as that: Buy during the slow season, and sell during the peak season. That’s a simple yet very effective way to maximize your profits.