Rather than being based on your credit score, income, downpayment, and condition of the property, it is based on the strength of the deal. This is music to an investor's ear because it is so synergistic with their goals.
- Short term (3–36 months)
- High interest (8–15 percent)
- Involves a high number of loan points
- Much faster than traditional loans
The interest rates might be higher, but if the deal works, the deal works
***Potential Video/Blog Idea: List of Hard Money Lenders Across Ontario
This is usually a great strategy for flippers because they are going to buy and sell the property in a shorter period of time, and as long as the high-interest rates are accounted for, they will still be able to sell the property for a solid profit.
There is a lack of formalities here, and hard money can be received in a few days. Hard money does not really have rules to it, and everything is up for negotiation between the lender and the borrower.
All the hard money lender cares about is the security of return on investment. Are they going to make money off the deal, and a worthwhile amount of money at that? If so, then they will take the deal.
So if you can frame a deal that is good for you and the hard money lender, you win.
A good rule of thumb hard lenders go by is at least a 50–70% LTV ratio for the after-repair price.
So the Million Dollar Question becomes can a buy-and-hold investor use hard money?
One solution is for the hard-money lender to buy and rehab the property, and then to re-appraise the property and switch to a conventional lender, and use that conventional lender to pay off the hard-money
How can you get conventional lending now if you didn’t get it before? By showing the rental income that is coming in, as well as the re-appraisal on the property.
You will need to add a significant amount of value to the property in order to really pull this off because conventional lenders only provide an LTV of 80%, and therefore you must re-appraise for 1.25 (100% / 80%) times the amount of the original purchase price. 80% of the re-appraisal price needs to be enough to pay the original hard lender.
Therefore, you must have loads and loads of comparable property examples (to compare to your after renovation home) that will ascertain the potential of re-appraising at an intended price.
And of course, in order to determine whether you will get approval on the loan afterward, it is best practice to get a mortgage pre-approval NOW. If you live in Ontario and want to get in touch with a mortgage broker who is investment-focused, connect with me here.