Hard Money Lenders vs. Private Money Lenders

Let’s review and compare hard money to private money. They appear to be alike, but in many ways are different. Often investors will confuse the two when discussing.
Both hard money and private money are typically asset based loans, backed more by the strength of a real estate purchase than the financial credentials of the borrower. Both are from non-traditional lending sources. (Neither are banks or national lenders.)
So how are they different?
Hard money lenders, despite their non-traditional status, are still organized money lenders and are usually in some way licensed to loan money. 
Private lenders are just what their name suggests - private. They could be a friend, family member, business associate, or maybe just a professional referral. In any case, their role as a provider of funding is strictly as you agree upon with them.
Hard money lenders typically have lending criteria. Their loans have defined durations, interest rates, and upfront points, all of which are known prior to a loan ever being issued. In fact, these criteria are often used to differentiate and select hard money lenders, when investors are shopping for available options.
Private money is much more flexible on all of the points mentioned above. Most have no preset criteria, and the loan terms you work out with them are almost always a function of how well you negotiate them for a particular loan.
Limits on lending, interest rates, and loan duration are all, as they say, "open for discussion," so a simple commitment to an agreement suitable to all parties will often get the job done.
Private money is more flexible--and usually cheaper!
An important thing to mention is that private money is characteristically cheaper than hard money. This is not always the case, but it is a common trend nonetheless.
Why? Most hard money lenders get their funds (at least in part) from private sources, so they must mark up their interest rates and fees to make a profit. When you work directly with private sources of capital, you effectively cut out the "middle man" and can be in line for better terms.  
Hard money is usually easier to find.
The obvious caveat to private money is that lenders are not usually out there advertising that they have money to lend. Hard money lenders will often do just that because they are specifically in the lending business. It just makes sense for them to promote what they do.
Because of this, hard money is usually easier to find and requires fewer business/negotiation skills to secure a loan.  
But if you are willing to make the effort, private money...
  • is out there
  • is very comparable to hard money, and
  • is therefore an excellent way to fund real estate deals
When you keep your funding options open, your quest for a quality investment will be both more productive and more profitable. I sincerely hope these basic tips have been helpful to you, and I wish you the very best in your pursuit of real estate ownership.

What the government isn’t telling you about imposed moratoriums and loss mitigation programs

In this post I'll talk about how the government's moratoriums and loss mitigation programs have affected foreclosures and shadow inventory.

Shadow inventory is made up of all the properties that are in foreclosure or headed toward foreclosure that haven't hit the market yet. There are 7 million homes in this shadow inventory category. What the government isn't telling you is that their moratoriums and loss mitigation programs created a huge surge of foreclosures that are about to pop.

Their effort to decrease foreclosures has backfired.

According to the National Association of Realtors, there were 3.6 Million unsold homes in September. You think there are a lot of homes on the market now? There are 7 Million more coming that the government has created in this shadow foreclosure inventory. That's 2 times the amount of homes that are currently on the market now!

The government's Making Home Affordable (MHA) modification program and FHA's Hope for Homeowners refinance program DO NOT WORK for borrowers that are too wealthy or owe too much
on their homes. The number of foreclosures for high end and luxury homes is increasing and there are a ton of luxury homes in this shadow inventory.

So what does all of this mean to you as a real estate investor?

Opportunity, a lot of opportunity to help high-end homeowners by offering them a short sale while making a killing in the process.

So when can we expect to see the surge in foreclosures from this shadow inventory?

We are in the first phase of shadow inventory right now and it will continue through 2010. The second wave will continue into 2011 because the national foreclosure moratoriums ended in March 2009 and the government intensified its HOPE NOW Alliance program as well as its Home Affordable Modification Program (HAMP). These programs were released in the first week of March 2009 but the problem was that the services and lenders did not receive training until the middle of June. Then, the programs had to be updated because they weren't effective and they became more complicated to implement effectively.

This created a huge amount of people that have not paid their mortgage and their houses have not been taken back by the lenders yet. Basically the government only delayed the inevitable foreclosure process but they made it worse because all of the homes will be entering foreclosure at the same time and with more debt owed on the mortgages. 

This is the ultimate short sale environment. These homes are ripe for the picking. Many of these homeowners have thrown their hands up and have vacated the houses. These vacant houses are gold for you as a real estate investor.

The third phase of shadow inventory will be borrowers that have exhausted their options on long term government sponsored payment plans, forbearances, and failed modifications. These will show up in 2011 and continue into 2012 as their foreclosure timelines were delayed or reset by the latest HAMP efforts.

The Biggest Mistake

Investors tend to go through a check list.
1) Find/fix property
2) Find someone who wants my property

Real estate is like a maze, it is so much easier to start from the end. A better way to invest in real estate is:
1) Find people that want a certain type of property
2) Find that property

Changing your thought process on this one factor can save/make you thousands.

The Wholesaler, Joint Venturer and The Investor

"Success happens today and everyday, not tomorrow or someday.  The only time you can be successful is now." Don Dwyer (1942)

No we're not talking about the Three Muskateers - we're reviewing roles, or players you can work to make money in this business.  Real estate wholesale is a very lucrative business that you can get into easily and make money at quickly.  With repetition you will achieve a level of skill locating properties that you may decide to stay with this concept.  But for now, let's simply explore other avenues for this discussion.

The Wholesaler
The wholesaler locates the property that can be purchased below fair market value, puts that property under contract at one price, and then sells either the contract or the property at a higher price to someone else. After the wholesaler has sold a contract, the closing, any rehab work, and final resale of the property are entirely up to the investor or buyer that purchased the contract and ultimately the property. This is one of the easiest and most simplistic real estate transactions to accomplish. As a beginner in creative real estate, wholesaling your contract is a great place to start. The turnaround time for large profits in hand is just a matter of days, enabling you to ‘earn while you learn’ the business with very little or no cash outlay (depending on the deal type). One of the tools I use to find property is a site created by the folks in California at ForeclosureS.com.  Take a look at their offer on the right side of this page.  They are great at what they do.  At some point in your personal progression and development in creative real estate, you will probably find yourself evolving into one or more of the following advanced type of wholesalers.

Joint Venturer
A joint venturer is like a wholesaler in that he or she locates a good deal and then signs a purchase contract with the owner. Unlike a wholesaler, who has no further involvement with the property once the contract has been assigned, a joint venturer will be involved in the entire deal from purchase to resale. A joint venturer usually provides the investor with a contract plus whatever labor, services or supervision they agree to in a Joint Venture Contract*. It may take the joint venture partners several months to receive their profits, unlike a direct wholesaler that receives his or her margin in a matter of days.

An investor commits money, time, labor, and other personal resources in order to gain a financial return. Most investors involved in creative real estate transactions will either operate on an all cash basis, have a line of credit, or have pre-approved financing. Some are low-dollar investors, while others have virtually unlimited funds to do business with. Every investor has one thing in common; they are always on the prowl for properties to acquire.

* A Joint Venture Contract outlines each partners responsibility, ownership, percentages, rehab work, and project timelines.

Social Networking Your Business

 A few years ago I had the privilege of attending a conference in Orlando.  The keynote speaker on the last day of the conference was the best-selling author and speaker Stephen Berlin Johnson.  Mr. Johnson spoke about his latest book Everything Bad Is Good for You: How Today's Popular Culture Is Actually Making Us Smarter.  In the book he breaks down all of societies preconceived notions on things such as video games.  Some say kids today spend too much time playing video games and not enough time playing ball outside.  That very notion Mr. Johnson broke down into a graphical presentation explaining the thought processes someone goes through to reach various levels of a video game like World of Warcraft .  He flowcharted the steps of how a business will implement a new product from conception to final market plan.  Then he placed a flowchart of just how the video gamer will go from the first level of the game to achieving the highest level.  And these gamers will do it without reading a book about the game.  No cheats if you will.  It was an amazing eye-opener to say the least.  So what has this to do with social networking your business?  Technology, mobility, integration all play crucial roles in your ability to stay in touch with your base and your prospective investors. Kids are spending way too many hours on video games sounds logical - but is it.  Mailing a post card to reach property owners may sound good and solid.  But for the most part today it just isn't going to reach the highest number or people.

Your Real Estate business is not unlike any other business. It's all about marketing. Marketing yourself and your reputation. Marketing your business - getting the name out there so people associate your business with you and with your niche. The ability to Buy Real Estate at Wholesale is in part accomplished by you finding the right property and making the purchase. All of this depends on your ability to market yourself and your business. Use the right tools to get connected.

The way successful businesses are reaching the market place today is changing. And if your business isn't able to adapt, to change, or if you have not figured out what all of the buzz is about - then I strongly urge you to watch the video below. Make notes, watch it more than once, but set your game plan for 2010 to change. You've put together your business plan for this New Year so part of your business development and marketing budget needs to include books or online classes to learn the latest social networking tools. Don't miss sales because you are still doing business 'so 2007'. It is essential that your business incorporate the newest social networking tools such as Facebook , Twitter , Digg, LinkedIn and others. These aren't fads - these are tools for reaching your customers and peers. It is as crucial to you as your contact management software. Make your resolution that this year will be the year you Tweet or MySpace.
As they say - Just do it.

In a future posting I'll talk about mobile marketing and how that un-tapped segment of our society can be reached.  But for now you need to watch this video.  Click here and enjoy.

Buy Real Estate: One Great Thing

One great thing about wholesaling real estate is that you don't have to take ownership of the particular property. Once you located the property and have it under contract, you assign the contract to another buyer who will then close on the property in your place. Generally there are no risk, and you can do it with little or no money down. That of course depends on how the deal is structured.

Some investors use the term 'wholesaling' while others refer to it as 'flipping'. Regardless of the term you use, the bottom line is the same - you can make big bucks from property you don't own.

Buy Real Estate: Getting Started

First, you need to understand the basics of real estate. Everyone knows something of this industry and may have preconceived notions about what it is all about. Real Estate investing can be a very rewarding business but it can also be very frustrating. It is not for everyone and whatever the level of expertise you bring to the table, make sure you do your due diligence along the way.

Surf the net using keywords such as 'beginning real estate', wholesale real estate, etc. Read what the experts have to say about getting started. Be aware that not all of the sites you hit concerning this subject are actually about our topic - but that's not bad. You get to see what you are about to jump into. Some sites are about getting you to sell property or buying their properties. If you prefer a book in your hands to read over lunch in the park, or at the hockey rink, wherever, go to your favorite bargain book store and grab a copy of 'Real Estate for Dummies', or 'Real Estate Principles'. Again you could cruise out to Amazon.com or Barnes & Noble (bn.com), they will have these two and many other opportunities. Just make sure you get a good foundation of understanding under your belt.

A strong suggestion here is to connect with an experienced investor. Reading is great for understanding the layers - but hands on knowledge from someone already working that beat can make it smoother. Right, wrong, what to say, what not to say. That individual has already done all of that and more.  I have a partner that is such a person, mentoring me along the way.