Drawbacks of 100% Financing
If you are planning on borrowing funds for your first (or next) flip, you have an important decision to make – will you use 100% financing or invest your own money into the project? 100% financing has a nice ring to it, but the reality is that these loans have major drawbacks.
- Higher interest rates
- More points
- Higher rate of default/foreclosure
By not putting up any of your own capital you might be thinking that you have decreased your risk, but in reality the risk was just transferred to the lender. Now the lender can use their higher risk to justify less-than-desirable rates and additional points. These factors eat into your profit margins, making your hard work less rewarding once the project is complete.
“Loan to Own” Lenders
To make matters worse, some lenders prey on investors needing 100% financing and that have underestimated their rehab costs. Once the investor runs out of borrowed money before the rehab is complete, the lender then forecloses on the home and receives 100% of the profits from its sale. This practice is often referred to as “Loan to Own” and can result in wage garnishment, asset seizure, and property liens for the investor. This is bad business and only hurts the real estate investing community.
Putting Your Own Money to Work
Investing some of your own capital into your next flip can give you access to hard money lending. A hard money lender like Washington Capital Partners solves the problems associated with 100% financing by offering you a more beneficial partnership.
- Lower interest rates
- Less points
- Lower rate of default/foreclosure
- Up-front analysis of the ARV (After Repair Value) of your deal
- Local market expertise
- Local inspection staff to avoid construction draw delays
As a local hard money lender, Washington Capital Partners advocates for the success of local investors who choose to partner with us. From providing realistic ARV’s for each proposed deal to releasing construction draws as quickly as possible – we pride ourselves on honesty, efficiency, and of course competitive rates. If you have more questions about hard money loans, please contact us today.