Most people who started out in real estate investing fall in the first category. In fact, many investors started with no money of their own at all.
There are many ways to overcome this obstacle of funding.
Here, I’m going to explain how you can start getting funded for your good deals.
With the popularity of TV shows on real estate investing, and the rise of crow-funding or angel investors, there are many, many online companies popping up with the intention to lend to start-up businesses, real estate investors, small businesses, etc.
I intended this article to be a resource for local real estate investors looking for funding for your next good deals. The resources I listed here are companies I have researched, and some I have used. Most of these don't charge a fee to use their services. Be aware of lending sites that charge $5,000 or $9,000, who promise to get you a $200,000 line of credit. You can get your funding with these companies below without first breaking your bank.
Personal and Business Money Lenders
FundEra.com - small business loans
FundingCircle.com - small business loans
LendingClub.com - personal and business loans, and business line of credit.
Prosper.com - personal and business loans
HardMoney and Private Money Lenders
Hard money lending is the process of borrowing money from a professional lenders, with the bulk of the lending decision based on the hard asset being bought.
Private money lending is borrowing money from non-professional lender, where the bulk of lending decision is based on the relationship between the lender and borrower, but enhanced by the hard asset being bought.
Private lenders lend money out not as a living, but usually as an investment. The rate, fees and terms are usually less and much more negotiable than hard money lending.
Private money and hard money are expensive. There is usually an origination feed of 1-2%, and the interest rate is about 10-18%, depending on the purpose of your investment, such as fix-and-flip vs buy-and-hold. Also, these are short-term loans that are usually re-paid in 6months to 1-2 years, which means you need to have a way to pay off the investors quick. Such as in a fix-and-flip, you’ll mostly likely finish your rehab in couple of months and sell right away.
And in a buy-and-hold, you need to be sure you can either pay off the loan with cash or refinance with a mortgage. Remember, with hard money and private money lending, you still need to come up with at least 35-40% of your own money. These investors would not lend to a project if you don’t have any of your skin in it. The reason why hard money and private money charge higher interest rate is because they don’t care about your credit score. All they want to know is the loan is back by the property because if you default, the investors will foreclose on the property, just like a bank does.
Read: Hawaii Private Money Lenders
Hawaii Hard Money Lenders
Hawaii Lending Group
Hawaii Lending Group offers first mortgage loans of between $50,000 and $2,000,000, to be used for commercial or investment purposes on properties that are not primary residences of the borrower. Loan durations of six months to three years are available and can be secured by commercial or residential property. Borrowers are typically required to hold a 25% or greater equity position in the property. Rates are competitive, with annual interest averaging 12%, with 3 to 5 points charged at closing. Brokers are welcome and commissions are negotiable.
Investors Funding Corporation
These are criteria for rehab and flip loans of Investors Funding Corporation:
First, locate your target, do your due diligence, line up your funds or get a partner with money, get a reliable estimate on the rehab costs and only then come to us.
o We only loan on property located in the State of Hawaii. Mainland loans—go elsewhere.
o We loan only when the investors is able to put up in cash 40% to 60% of the actual purchase price The Loan-to-Value (LTV) is determined on a case by case evaluation.
o If in our opinion, the “as is” value is lower than the purchase price, the percentages apply to the lower of the two.
o It is possible to cross-collateralize the loan with a first mortgage on a different property, provided it is a first mortgage and otherwise meets our criteria.
o For LTV purposes, it is the actual purchase price, not the projected price when rehabbed. The rehab value is relevant only for exit strategy purposes.
o We need to have your pay a small fee to inspect the property ($125 to $200) for us verify the “as is” value and estimate the cost of the rehab.
o We must be in a first mortgage position.
o Then borrower must show us that he or she has the funds to accomplish the rehab.
o The investor must demonstrate to us that he or she has the financial resources to service the loan.
o We can load the interest into the loan amount but the resulting loan amount must meet our LTV determination.
o The borrower must have a reasonable exit strategy.
o Our loans are interest only.
o Our interest rate is 11.5% to 18%.
o We have a minimum loan fee of $3,000 or from 5 to 8 points.
o For rehab or flip situations the loan term is no more than one year.
o If you want to rehab and hold on to it until the market recovers, the term can be for 2 years provided can service the loan.
o There is a prepayment penalty of 6 months interest.
o Currently our loan limit is $1,000,000.00.
Pacific Home Loans
Hawaii! Pacific Home Loans provides equity-based lending for real estate property, as well as sub-prime money for borrowers who do not meet the stringent requirements of today’s conventional underwriting guidelines. As a direct private money lender, Pacific Home Loans is able to provide financing solutions to borrowers who are experiencing challenging times and are in need of fast, creative financing solutions without regard to their FICO credit score.
- When conventional financing is NOT an option
- Fast closings in as little as 2 weeks
- Non-traditional credit okay
- Qualifying: Cash flow in place of Adjusted Gross Income
- No seasoning requirements for cash out
- Bridge Loan: REO, Foreclosure, and Short Sale flips
- Bridge Loan: Funding for acquisition and rehab in preparation for conventional financing
Private Equity Lending
COHI believes in fair pricing and terms for all of our Hawaii loans. Hawaii hard money loans are generally more expensive than conventional financing due to the increased risk factor to the lender. COHI offers more affordable, flexible and out-of-box lending solutions when an institutional or conventional Hawaiian loan is not an option.
Pricing and Terms: Rates vary by the type of Hawaii property and the length of the loan. Rates vary depending on the complexity of the deal. Fees also range. Loan to value can range up to a maximum of 70%. Loan amounts range from $50,000 — $3,000,000 and vary depending on type of Hawaii property, location and the condition of the property. All of our Hawaiian hard money loans are interest only payments throughout the term of the loan, however there are some cases where the payments are built into the loan.
COHI offers flexible prepayment terms on each loan and they vary depending on the length of the loan. COHI only funds first mortgage loans and will never finance a second position loan. All loans can come with an extension clause just in case plans are taken off course. General pricing and guidelines may vary with every deal, so please call to discuss.
Areas Served: COHI funds Hawaiian loans with real estate as collateral in the following areas in the Hawaiian Islands: Maui, Kauai, Oahu and the Big Island.
Portfolio Money Lenders in Honolulu
Some local banks offer portfolio lending, meaning then bank is using it’s own money to lend for your property. It’s like the bank become a private money lender. Leasehold properties in Hawaii don’t qualify for Fannie Mae or Freddie Mac, so banks cannot sell those mortgages after they are initiated. So some local banks would give you a mortgage on your property with their own money, and they’re keep this mortgage as their own investment in their “portfolio”.
Here’s a list of local banks that offer portfolio lending. If you belong to a credit union, ask the branch manager about portfolio lending. Small banks and credit unions has limited resources to compete with big national or local banks for business, so a lot of times you can get really good deals because they want your business.
Bank of Hawaii
Central Pacific Bank
First Hawaiian Bank
Hawaii National Bank
Here’s a list of companies that work specifically with real estate investment funding:
Cash-value life insurance
Did you know you can borrow money from your life insurance for free? It's a strategy called "Be Your Own Bank". I’m not going to go into detail about this approach of funding. You can learn more about cash value life insurance in Be Your Own Bank.
Friends and Families
Don’t forget your friends and families can be a resource of your funding too. But, personally, I stay away from this resource. I like to keep my business business, and families & friends families and friends. I don’t like mixing these two together, because I don’t want to lose either.