![]() On the plus side, private money is flexible and the terms are negotiable. Some real estate investors raise money privately from friends, family members, colleagues, and acquaintances. Without a lien securing them to real property, they come with significant risk for the lender. Some hard money lenders even offer unsecured personal loans (check out New Silver as an example). Personal LoansĪlternatively, investors can borrow an unsecured personal loan from a bank or other lender. Some gap funding lenders also require a percentage of the profits from the deal to make the loan worth their while.įor an example of a gap lender, check out Gap Funding Solutions. Which means they charge accordingly, with high interest rates and fees. Because they take a second lien position behind the hard money loan, and because they are lending a high loan-to-value ratio (LTV), they take on enormous risk. Some lenders specialize in gap funding for real estate investors. While not an exhaustive list, anyone investing in real estate may consider these options for real estate gap funding. There are many potential sources of gap funding for real estate investors. In other cases, investors have most of their money tied up in another rehab, but find an outstanding deal too good to pass up. Alternatively, a renovation project may take longer than expected, pinching them on carrying costs and risking foreclosure. Sometimes investors run over budget on the renovations of a flip and need a quick influx of cash. But its uses go beyond trying to invest with nothing but other people’s money. Theoretically, one can use gap funding to flip a house with no money down. In other words, investing in real estate needs tens of thousands of the investor’s personal own money to flip a house or do a BRRR deal-unless they borrow from a second source for real estate gap funding. And while most hard money lenders do provide 100% of the renovation costs, lenders require the investor to put up the money for each phase of repairs first only then will the investor be reimbursed in draws. That leaves the real estate investor to come up with the other 20% to 30% as a down payment, plus closing costs. A typical hard money loan only covers 70% to 80% of the purchase price of a property. ![]()
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