The caller says, "Hi, I just bought a property in Detroit for $1,600 cash (yes, sixteen hundred dollars) and need a local hard money lender to lend me money to rehab it, what are your qualifications?" Sounds like a reasonable requests, right? So I ask, "Well, let me ask you a couple of questions about the house." Ready... here comes their response... "I haven't actually seen it, other than the picture in the listing, I live in California but it was too good to pass up!"
If I hadn't been side tracked with our conversation about California, (after college I moved to San Diego for 23 years and have since moved back to my hometown in Michigan) I might have said what I was thinking, "Are you out of your mind? Who buys a house without looking at it, walking through it and driving around the neighborhood?" I wish that was the only call I've had like that one but it's not. A picture is not always worth a thousand words, not in this business anyway.
As a Hard Money lender, typically I would get in my car and drive by the house myself but this time I didn't bother, the caller told me enough about the house that I could determine it wouldn't qualify. In Detroit, or any city for that matter, you can't just buy a property because it's unbelievably cheap. Without seeing it with your own eyes or having someone you trust to personally walk through it, you'll have no idea what you are getting into. You know the saying, "If it's too good to be true, it probably is", many real estate investors are just now learning what that means. I recently drove by the callers house, 2 months later it's still an untouched eyesore.
Here's another repeated investor problem, buying a group of properties, bulk purchases where you pick up 20, 25 or 50 houses at one time. These are a grab bag of unsellable properties the bank couldn't unload any other way. The last group I looked through had only one house I would consider out of 30, and I say consider because it was the best of the bunch in a marginal area, not good. I doubt many investors who buy in bulk have walked through all of their properties let alone driven through the neighborhoods or they wouldn't have bought them. On the other hand, if you need to show a loss on your business ventures this could be the answer.
My suggestion is to search the internet for a local rehab or hard money lender before you buy; they'll tell you what they lend on and why. If you need unconventional financing don't you think it's a good idea to find out what they'll expect and what to avoid? Most Hard Money lenders, especially rehab lenders are usually local to their real estate market. They're on the ground watching everything that may cause risk to their investment dollars. If you're buying out-of-state do yourself a favor and take a trip to the area you're investing in. By the way, Michigan is beautiful this time of year.
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