I won’t kid you. Direct hard money lending has an allure to it. Perhaps because it opens up all sorts of opportunities, whether true or not, that somehow or other makes you think that you can get a loan regardless of how dismal your credit rating is. After all, you could have a FICO of 300 and smash! You get that loan. Of course, there are the downsides too: The high interest, the relatively low value in proportion to property, the fact that you could lose your property. (Many do). But, at first sight, the possibility of getting a loan scotch-free seems alluring.
Getting direct loans are risky, so this article gives you some laptop-to-eyes tips about how to figure out when is the best time to start a fix-and-flip. Know that, and you can save yourself a lot of unnecessary expensive and regret.
All real estate is local
Real estate is like a job market. Not too long ago, national reports proclaimed the high state of unemployment. Newspapers mentioned that unemployment was rampant; radio, TV, internet all heralded scurrilous news of people losing their jobs. And most of the country was undergoing a recession. However, there were small regional pockets such as the fracking boom in North Dakota where, if you worked in that industry, you were going strong.
How does this apply to real estate? Some investors make the mistake of looking at national news. They may read reports of housing booms and rush to invest, but the reality is that markets vary from place to place. Some areas experience higher opportunity than others, while others remain or become distressed. At the moment, for instance, California is going high – the place shows huge demand (although it is unaffordable; these are two different factors). Detroit, on the other hand, seems to be declining. The point of this is: Forget national numbers. Evaluate your own region.
Look at the local market
There are various ways of assessing market stability in your own region. Review reports of local real estates: look at the numbers of properties that are sold, expired or languished. Read local real estate data and check out the Local Homes Inventory. Each of these would tell you whether or not to invest in local holdings.
Essentially, few investors want to buy property in non-desirable or declining neighborhoods. You can tell if a neighborhood is so by following the amount of houses for sale versus those sold. If the equation is imbalanced with more homes lingering then sold, this may imply that the market is in flux with more people leaving the region than entering. What you’ll want to see is a stable market with a balanced proportion of immigrants to emigrants. This tells you that it may be worth your while to buy for cheap and convert for hopeful profit. Your alternative is to pack your bags and move elsewhere.
National data may show a spiking tide, but the tide exists for boats that are bobbing on the waves. You’ll need to bob your boat in that tide for you to profit from it.
Analyze the distressed situation market
The previous section described a distressed market situation. It suggested that if you found yourself in one, you may benefit from rocking your boat elsewhere.
Distressed situations vary. There at times when the market is saturated with undesirable houses. A saturated market barrels prices to lowest denominators. Some markets stabilize after a while and straighten. Such was the case with the West Coast several years ago. Investors who plunked funds into cheapest houses later found themselves selling for profit.
Again, this entails an individual look at each locality. Is yours a neighborhood that is currently distressed but may eventually stabilize? If so, it may be worth your while to invest and even borrow the funds to do so. You may find yourself becoming a millionaire once the market straightens…
Knowing short from long
Too many investors fail here because optimistic situations seem as though they will endure. Nothing could be further from the truth. This is where factors of ‘bubbles’ and housing shortages come into play. The economy affects too as does foreign politics and macroeconomics which decides whether or not foreigners find the area attractive enough to invest in it. Then there is the amount of debt that an environment has and its local or national income. Too many factors implode here. To succeed, you may want to scrutinize your environment and see if you want to go ahead and invest in the region.
Direct hard money lenders are a wonderful resource. They can get you a loan when times are rough and you want to move, or are driven to fix and flip an apparent attractive property. Direct loans are also hugely expensive – double as much as traditional loans. Think twice before taking that route and have a look at the market before you do so. Analyze the local market; assess the distressed situation; master some real estate fundamentals. And if you still need that loan and are unable to get it through conventional means, consider giving hard money lenders a handshake.