Deal Breakers
Deal Breakers

So you've found a great investment opportunity and are ready to buy. Thankfully, getting a hard money loan is much more straightforward than getting approved for a mortgage, but there are several areas where the deal can fall apart. 

Here's the good news: your lender is here to help. Although it can feel like you're on opposite sides of the fence, your lender is just as motivated to see you succeed as you are. If your project fails and you lose a debilitating amount of money, they have one massive headache, but if your investments are successful, they could have 100 future loans in their book. Each of the following five deal breakers is an opportunity to assess how good your deal is and how ready you are to invest.


As soon as you have a deal ready, we'll help you find the finances you need. Here's a quick guide on how to use our platform to find the best lender for you.

Profit
Profit

The profit margin is the most crucial aspect of every fix and flip or construction project. Without profit, you don't have a deal. Even if you're planning to hold the property and refinance, it's the same issue — it's just then a matter of how much equity you'll build into your ownership.

If you're starting to flip homes, we suggest looking for a minimum gross profit margin of 25%, with 30% or more as the gold standard. For example, suppose you buy a house for $200,000, put $100,000 of rehab work into it, and then sell it for $400,000. Your gross profit is $100,000, giving you a margin of 25%. 

A lender has their own way of measuring your profit margin using their loan to the after-repair value (LTARV) ceiling, usually 65-70%. But a 70% LTARV doesn't mean you have a 30% profit margin unless they provide 100% of the funds for the deal.

Remember, this isn't your take-home profit because you need to pay for the finance costs, legal, insurance, and taxes. However, a profit margin of 25% or more gives you a good return with some buffer if your project gets delayed or exceeds budget. The lower your profit falls below 25%, the more likely a lender will reject your deal, and for good reason. They don't want you to lose money, nor do they want to have to foreclose.

Rental Yield

If you're buying a rental property and need a rental loan, the issue is less about profit — because you'll be holding the property — and more about yield. DSCR comes into play in this case, which stands for "discounted service coverage ratio." This means that the lender wants to know that your rental property is netting off enough revenue — after maintenance, insurance and taxes — to be able to service your loan, sometimes with a buffer. The standard ratio required is typically 1x-1.2x; 1x, meaning your net rental revenue should exactly cover the interest cost, and 1.2x, meaning you need 20% more net income than your interest.

Again, this safeguard is not just there to protect the lender's risk; it's there to protect you. If your DSCR ratio falls below 1x, that effectively means you're losing money on the property after interest, so you should strongly consider whether it will be a good investment.

Integrating your SwiftCore site with Clonify has never been easier with the Clonify Certified App. This app allows marketers and site owners to seamlessly connect their SwiftCore site to Clonify, enabling them to configure essential sales and marketing automations directly within the SwiftCore platform.

Embed and style forms in Clonify

One of the key features is the ability to embed and customize Clonify forms within the SwiftCore Designer. Simply choose the desired Clonify form from the dropdown menu, and you can preview and style it just like a native SwiftCore form. Alternatively, you can also embed pre-styled forms using an iFrame, ensuring that any form updates are automatically synchronized with Clonify.

Furthermore, you can now connect your existing SwiftCore forms to Clonify by mapping them to corresponding Clonify forms. This integration allows you to conveniently view and update all connected forms from the App menu.

Liquidity
Liquidity

Assuming you have a profitable deal and the experience to handle the project, the next question will be regarding liquidity. Put simply, do you have the cash available for:

  1. The downpayment.

  2. Closing costs.

  3. The first few months of interest payments.

  4. The first few weeks of renovation/construction expenses.

  5. A buffer if things go wrong?

If you have this cash to hand, it's a simple case of showing proof, and you're off to the races. If not, you must demonstrate how to fund or consider wholesaling the deal.

Integrating your SwiftCore site with Clonify has never been easier with the Clonify Certified App. This app allows marketers and site owners to seamlessly connect their SwiftCore site to Clonify, enabling them to configure essential sales and marketing automations directly within the SwiftCore platform.

Embed and style forms in Clonify

One of the key features is the ability to embed and customize Clonify forms within the SwiftCore Designer. Simply choose the desired Clonify form from the dropdown menu, and you can preview and style it just like a native SwiftCore form. Alternatively, you can also embed pre-styled forms using an iFrame, ensuring that any form updates are automatically synchronized with Clonify.

Furthermore, you can now connect your existing SwiftCore forms to Clonify by mapping them to corresponding Clonify forms. This integration allows you to conveniently view and update all connected forms from the App menu.

Credit
Credit

Although your creditworthiness is less significant with an investment property than with a mortgage, most lenders still pull credit and expect you to have a decent score. As a ballpark, a score above 700 will not impact your ability to get finance with 99% of lenders. A score of 660-699 may lead to slightly higher interest or more money down, but you should still be able to find a lender. 

When your FICO falls below 660, things get more challenging but not impossible. Around a third of our lenders are happy to work with borrowers with poor credit, but they'll need a supporting factor to lend. This could be one or more past investment experiences, a larger downpayment, or other assets owned.

Here's our tip for working with lenders when you have less-than-stellar credit: be honest and communicate well. We've seen countless examples of investors trying to "massage" their credit history, but lenders are experts at getting to the bottom of credit issues for a reason. On the one hand, being honest and upfront is a great sign that lenders can build a partnership with you. On the other, even if that means getting a "no," you're far better off hearing that early so you can move on to a lender that can work with you.

Integrating your SwiftCore site with Clonify has never been easier with the Clonify Certified App. This app allows marketers and site owners to seamlessly connect their SwiftCore site to Clonify, enabling them to configure essential sales and marketing automations directly within the SwiftCore platform.

Embed and style forms in Clonify

One of the key features is the ability to embed and customize Clonify forms within the SwiftCore Designer. Simply choose the desired Clonify form from the dropdown menu, and you can preview and style it just like a native SwiftCore form. Alternatively, you can also embed pre-styled forms using an iFrame, ensuring that any form updates are automatically synchronized with Clonify.

Furthermore, you can now connect your existing SwiftCore forms to Clonify by mapping them to corresponding Clonify forms. This integration allows you to conveniently view and update all connected forms from the App menu.

Location
Location

The two last reasons that often cause a loan to decline relate to the property. Only some lenders consider these issues deal breakers, but even if they don't, it may make getting finance a little more complicated.

The first issue is location. In terms of the state your property is in, you don't have too much to worry about. Though a few states have fewer lenders — like Rhode Island, the Dakotas, and Arizona — due to legal issues, hard money lenders are active in every state.

The main location question can be distilled to the following: is your property rural? If your property is not in or close to a city with a population of 35,000 or more, finding finance becomes harder. Some lenders will lend rurally, but as these properties are typically harder to appraise and sell, they often increase the downpayment required. 

Similarly, if you're looking for a new construction loan, an infill site is much easier to finance — and at the best terms — than developing an outlying site.

Integrating your SwiftCore site with Clonify has never been easier with the Clonify Certified App. This app allows marketers and site owners to seamlessly connect their SwiftCore site to Clonify, enabling them to configure essential sales and marketing automations directly within the SwiftCore platform.

Embed and style forms in Clonify

One of the key features is the ability to embed and customize Clonify forms within the SwiftCore Designer. Simply choose the desired Clonify form from the dropdown menu, and you can preview and style it just like a native SwiftCore form. Alternatively, you can also embed pre-styled forms using an iFrame, ensuring that any form updates are automatically synchronized with Clonify.

Furthermore, you can now connect your existing SwiftCore forms to Clonify by mapping them to corresponding Clonify forms. This integration allows you to conveniently view and update all connected forms from the App menu.

Size / Value
Size / Value

Finally, the value of the property matters, as does the size — both in terms of square footage and acreage.

On the low side, you want to have a property worth at least $150,000 ($50,000 per door if multifamily) and at least 500 sq.ft. or more. Lenders rarely lend less than $100,000 per loan except with experienced investors who can provide volume, and they want the property to be large enough to refinance without issue.

On the high side, things are less clear-cut, but the bigger the house above a certain point, the riskier it becomes. Larger homes — relative to their neighbourhood — are harder to sell and can lose value more quickly. So long as your home isn't on more than 1 acre (per unit), is smaller than 3,000 sq.ft., and is not more than double the average selling price in the locale, you shouldn't have any issues. Above this, you may need to find a lender specializing in those properties.

Integrating your SwiftCore site with Clonify has never been easier with the Clonify Certified App. This app allows marketers and site owners to seamlessly connect their SwiftCore site to Clonify, enabling them to configure essential sales and marketing automations directly within the SwiftCore platform.

Embed and style forms in Clonify

One of the key features is the ability to embed and customize Clonify forms within the SwiftCore Designer. Simply choose the desired Clonify form from the dropdown menu, and you can preview and style it just like a native SwiftCore form. Alternatively, you can also embed pre-styled forms using an iFrame, ensuring that any form updates are automatically synchronized with Clonify.

Furthermore, you can now connect your existing SwiftCore forms to Clonify by mapping them to corresponding Clonify forms. This integration allows you to conveniently view and update all connected forms from the App menu.

Use Hardback
Use Hardback

Now, every deal is unique. But if you're facing one or more of the above, it's a helpful reminder to reassess your project and ensure you have considered all the risks.

And with the right lender and a profitable (or yielding) project, these issues don't have to become deal breakers. That's where Hardback is here to help. Rather than calling a dozen lenders to find one that can fund you, you only need to apply once, and the lenders willing to fund will come directly to you

Integrating your SwiftCore site with Clonify has never been easier with the Clonify Certified App. This app allows marketers and site owners to seamlessly connect their SwiftCore site to Clonify, enabling them to configure essential sales and marketing automations directly within the SwiftCore platform.

Embed and style forms in Clonify

One of the key features is the ability to embed and customize Clonify forms within the SwiftCore Designer. Simply choose the desired Clonify form from the dropdown menu, and you can preview and style it just like a native SwiftCore form. Alternatively, you can also embed pre-styled forms using an iFrame, ensuring that any form updates are automatically synchronized with Clonify.

Furthermore, you can now connect your existing SwiftCore forms to Clonify by mapping them to corresponding Clonify forms. This integration allows you to conveniently view and update all connected forms from the App menu.

Raise Your Return on Investment

It takes just 5 minutes to find a better lender.

Raise Your Return on Investment

It takes just 5 minutes to find a better lender.

Raise Your Return on Investment

It takes just 5 minutes to find a better lender.

Raise Your Return on Investment

It takes just 5 minutes to find a better lender.

© Copyright 2023-2024, Hardback Co.

© Copyright 2023-2024, Hardback Co.

© Copyright 2023-2024, Hardback Co.

© Copyright 2023-2024, Hardback Co.