In this video, Darel Daik discusses what hard money is and how to use it in residential real estate investing.
Transcript for Video Interview
Darel: Hi, I’m Darel Daik, owner of Noble Mortgage and Investments. Noble Mortgage is a direct hard money lender located in Houston, Texas, but we also offer loans in Dallas, San Antonio, and Austin. I’m here today to talk about hard money and how to use it for residential real estate investing.
(0:21) What is a hard money loan?
Darel: So what is hard money? Hard Money is simply a short term asset-based loan used by investors to purchase distressed residential real estate. Hard Money can be a very valuable tool for investors if you understand how it works and when to use it.
(0:36) Why use hard money?
Darel: So why do investors use hard money? Investors use hard money when they need to close a loan very quickly, they need more leverage on the loan, or they’re buying a property in need of repairs. Hard Money Lenders can close loans in 7-10 business days. And because we’re basing the loans on the After Repaired Value, or ARV as we call it, you can often obtain up to 100% financing on a deal. When investors purchase a property in need of repairs, they are often buying that property at a deep discount. Hard Money Loans are not based on what you’re buying that property for, but rather what that property is going to be valued at after the repairs are completed, or again the ARV. By basing the loan amount on the ARV, investors are able to obtain up to 100% financing on a deal.
(1:21) An Example (Comparing a loan to a Conventional Lender)
Darel: Let’s walk through an example. Let’s take for an example, an investor is buying a property that costs $50,000. Now they’ve walked through the property with their contractor and they’ve estimated that the repairs will be about $15,000 to complete the home. They’ve also estimated the After Repaired Value, or again ARV, to be around $100,000. Now, if you take this loan to your neighborhood bank or conventional lender, they will loan up to 80% of the purchase price. They’re not going to loan you the money for the repairs or the closing costs. Now that would equate to $25,000 out of pocket plus the closing costs because it’s only going to give you a loan amount of $40,000.
(2:02) An Example (Comparing a loan to a Hard Money Lender)
Darel: Let’s run this through a hard money loan scenario. A Hard Money Loan, again, is based on the ARV. So, the ARV being $100,000- a hard money lender would lend up to 70% of the $100,000, which of course is $70,000. In this scenario, you are obtaining up to 100% financing on the transaction which is 0 money out of pocket.
So as you can see, Hard Money can be a very valuable tool for residential real estate investing.
For more information on our loan programs, please visit us on the web at www.NobleMoney.com or just give us a call at 713-680-8100.
Thank you and we look forward to hearing from you.