San Diego Hard Money Loans
Hard Money Line of Credit
Most people have no idea that a hard money line of credit even exists. The cool thing is that you can have money ready to go at a moment's notice to fund your project but you don't pay for your money until you use it. It is a big plus.
A hard money line of credit is like an equity line that you would get from a regular bank - except it is much easier to qualify for it. A hard money line of credit might be a great tool for you when you have a property with enough equity, and you want to have money ready to go when you need it.
For example, a person owned a property in Los Angeles valued at 5 Million dollars. A small loan of only $750,000 was the only burden on this property. There was plenty of equity in the property ($4.25 million in this case). The owner was looking to invest in a motel in Arizona for $750,000 but it was not clear yet when exactly the property would come on the market.
To beat potential competitors, the investor got a hard money line of credit for $750,000. That way, she was first in line to buy the motel as soon as it was available. She didn’t have to pay interest on this money until she needed it. That was excellent because she got the motel and got to save interest as well.
Using the hard money line of credit also saved her from stress. She did not have to stress about whether they will get their money in time to close their deal. Also, she was able to make a cash offer which helped her outcompete other investors and get the property.
Residential Investment Property
A borrower from Canada had no tax records and no credit history. He is an experienced and intelligent developer in Canada. He had a good contact in Temecula, California, who knew the area very well and was able to help him find a few good investment properties. He recently had paid cash on a purchase of a property in Palm Desert. Because of those investments, he did not want to use any more cash for the purchase of a flip he was also doing.
We funded a 100% loan of $380,000 for a property he was buying. We also lent him an additional $40,000 for fixing up the property plus $20,000 in closing costs. The total loan was $440,000. He did not need to come in with any cash. The expected value of the fixed-up property was $550,000. We used the property he had purchased with cash and owned free-and-clear as collateral. This property had equity of $250,000.
This is a great example of a person from another country with no income documentation or credit information buying an investment property without having to bring in any of his own money. This was possible because of the cross-collateralization with the property he owned free and clear.
Owner-occupied Residential Property
This example is a common scenario: A person lives in a property they own free and clear and wants to buy another property to move into. The borrower cannot show income documentation. Furthermore, the property with equity is owner-occupied. Both factors prevent the person from getting traditional financing.
In the case we are sharing here, both the old and the new property were appraised at $900,0000. We gave the borrower a loan for $450,000 (50%) on his current owner-occupied property. We also gave him another $450,000 loan on the new property (50% loan-to-value) he was buying. The total loan was $900,000, secured by $1.8 M of combined property values.
He used the money from the first loan to put down $400,000 on the purchase of the new home. Once he purchased the new property, he sold the initial property that he was living in and paid us off from the proceeds of the sale of that property.
A client owned a commercial property valued at about $1M in El Cajon, CA. He had a loan of $330,000 that was coming due. He needed to get another commercial loan, but the application process had become too difficult. Furthermore, he was not going to keep the property for more than a year. For him it was easier to just get a hard money loan or private money loan and pay for an 8% bridge loan for the one year.
In our industry, we call a loan with a loan-to-value of 33% a “no-brainer” because there is plenty of equity. He was a good borrower and yet, the hassles of getting a loan through a commercial bank became too difficult. The easy path in this situation was private money and it was not expensive, especially considering the amount of time and energy that he saved.
Construction and Land
One of our clients bought a piece of land for $1.2 M and subsequently ran into an emergency that put them in a cash crunch. As a result, they had to sell the property. We lent them $400,000 (33% loan-to-value) to give them the time to sell the property. – It is good to know that location is very important for land loans.
A construction loan in City Heights involved a property that was owned free-and-clear. The borrowers had the permits in place and had all the entitlements done. They needed money for ground-up construction. We lent them $1.2 M. The final property was expected to be worth $2 M. Therefore, the loan-to-value was 60%. – It is good to know that we can also lend up to 70%.
We can also help when a borrower needs money midway through construction. A borrower in Logan Heights was midway through the construction of three units in the back part of the property he had already purchased. He needed more money to finish the property. We lent them $200,000 to complete the units in the back part of the property, using the property’s equity as collateral.
We had a borrower from Russia. We helped him purchase a property for $400,000, and also loaned him the $40,000 he needed to fix the property. A few months later he turned around and sold the property for $600,000.
Hard Money is Not Hard
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