When it comes to Arizona Hard Money Loans, you want more debt, not less. Having more debt might not sound like good financial advice, but in the case of fix and flips, it is.
The best-laid plans of fixers and flippers often go awry.
Line by line you might have your project priced out down to the very nails you plan to use to install the kitchen cabinets. Your schedule might have a minute by minute breakdown of how work will proceed, “On April 16th, from 10:10-10:15, remove the carpet in the second bedroom, from 10:15-10:35 install new carpet,”
Maybe your plan probably won't be this detailed. But you might do a lot of homework and think you might only need so much financing, but if you do run out of funding…
It's going to be hard to get other Arizona Hard Money Lenders on board with your project if things go wrong
If you run out of money and you need more financing here's why it might be impossible to qualify:
• Title issues- If you run out of funding, a second lender will be second in line if you happen to default, which is far too risky for most lenders. So most hard money providers stipulate that they need to have clear title to a property.
• Title insurance issues- Title insurance issues will likely prevent a new lender from coming on board halfway through your project. Potential contractor liens prevent secondary lenders from qualifying for title insurance. Without title insurance, it will be nearly impossible for a second lender to get paid back if you happen to default.
• Negative stigma- You might have crossed every t, and dotted every i before you began work, but in spite of all that careful planning, you still ran out of money. Any potential lender isn't going to look at your detailed plan they'll look at the result you've produced so far. If you run out of money in the middle of your project, your results speak for themselves, and they say one thing: you're incompetent.
So let's see what could happen if you don’t apply for extra funding ahead of time.
With flips and Arizona Hard Money Loans, if you apply for too little, you won't be able to take care of unexpected difficulties.
Here are two common things you could face in any flip regardless of how thorough your plans were:
• Unexpected structural issues-Budget in hand you might go to your construction site and one of your contractors might tell you that the roof timbers are teeming with termites and the entire roof is going to need to be replaced before you can sell the house. The cost of replacing the roof is ten thousand dollars over your initial loan amount. Hat in hand you go asking lender after lender for more funding, but after your meetings, none of them ever call you back. Weeks go by, your home is unfinished, and your initial loan comes due. Obviously, you won't be able to make that final payment.
• Lazy contractors-Your contractors might sit around smoking cigarettes and listening to the radio, whenever you happen to leave the worksite. So in spite of your perfectly planned schedule, nothing is getting finished on time. So you bring in new contractors. But then all at once, your former contractors take out a lien against your property for work they never finished. So, now before you can sell your home, you need to pay them. You go to a lender, but your deal falls through because of the outstanding contractor lien. The final balloon payment comes due, and you're still unable to resell your home, and you default
What can you do to avoid these disasters? It’s simple don’t run out of money. Before starting a flip always apply for more financing than you think you might need.
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.