When applying for a hard money loan, many real estate investors assume their overall career or time in the industry is what defines their experience. However, for hard money lenders, experience is measured by very specific criteria. Understanding how these lenders evaluate your experience can help you secure better loan terms, including lower interest rates and reduced origination points.
Experience in Fix-and-Flip Loans
If you’re seeking a fix-and-flip loan, hard money lenders won’t just look at how long you’ve been investing in real estate. Instead, they’ll focus on how many successful fix-and-flip projects you’ve completed in the past two years. The more fix-and-flips you’ve completed, the more “experienced” you’re considered in the eyes of the lender.
A solid track record of recent projects shows the lender that you have the skills and knowledge to manage a property renovation from purchase to resale, which reduces their risk and may result in more favorable loan terms for you.
Experience in DSCR or Long-Term Loans
For investors seeking a DSCR (Debt Service Coverage Ratio) loan or a 30-year rental loan, hard money lenders will look at a different set of factors. In this case, they’ll want to know how many rental properties you currently own and how long these properties have been generating rental income. Specifically, lenders look for properties that have been rented out for at least six months.
This gives lenders confidence that you can manage long-term rental properties effectively, ensuring consistent cash flow to cover the loan payments. The more rental properties you have with stable tenants, the more experienced you appear to the lender.
Why Experience Matters
In the world of hard money lending, experience is everything. The more projects you’ve successfully completed or the more properties you’ve rented out, the less risky you appear to lenders. This can lead to better loan terms, including:
– Lower interest rates: Lenders are more likely to offer you a lower rate if they feel confident in your ability to repay.
– Reduced origination points: More experience can also translate into fewer upfront fees, saving you money on the overall cost of the loan.
At Preferred Capital Investors, we specialize in helping real estate investors like you get the funding you need to grow your portfolio. If you’re looking for financing for your next investment or have a property under contract, contact us today to discuss your options.