Whether you are a beginner or an experienced real estate investor, writing a compelling hard money loan proposal ensures a smooth application process for a hard money loan. Your proposal should help highlight your investment’s potential and help ease the concerns that may come with it.
In our previous blog, we shared how a young builder made $51,900 Net Profit after we’ve provided him with a new construction loan to build on an empty lot he had purchased. Unlike traditional lenders, having a hard money lender as your financial partner can be a faster and more convenient way to complete your real estate investment project and take a chance at impressive gains like many of our clients.
Most hard money lenders or private lenders require less documentation in their lending process than traditional ones but preparing a loan application proposal might give you an even higher chance of approval.
Read through the article, know what to include in your proposal, and increase your chances of qualifying for a hard money loan.
Hard Money Loan Proposal Structure
A hard money loan proposal should be able to address possible queries on the project. Your goal is to make the lending company invest in you. An effective proposal must be solid, structured, and easy to understand. Presented below are the principal components of a compelling hard money loan proposal.
Executive Summary
The executive summary introduces your proposal to the lender. It contains the overview of your project. In essence, it gives the lender an idea of each part of the project and highlights the following information:
- The purpose or reason for your loan application.
- The amount of loan you need.
- The loan term you want.
- A brief description of your qualifications.
- The equity you will invest.
- An estimate of the property ARV.
- Your project time frame.
- Your loan repayment scheme and primary exit strategy.
With an executive summary, you should be able to captivate the lender to continue reading your project proposal.
Borrower Experience and Expertise
This section is more about you as a borrower. Highlight why a lender would want to invest in you. Impress the lender with your experience and expertise in real estate investing. Establishing your capabilities in real estate and related industries assures a lender that you can see the project to completion.
Furthermore, attach documents that will attest to your accomplishments. Documents can highlight your financial stability and creditworthiness, increasing your chances of getting approved. Some examples of these documents are listed below. Include other documents that can help you get approval for the proposal and project.
- Your Updated Resume
- A Portfolio of successful projects
- Proofs of Income such as Bank Statements and Tax Returns
- Certifications or Licenses related to the real estate industry
- Proofs of Affiliations in the Real Estate Industry
- Business Papers
Project Description and Market Value
Lenders would like to know what they are investing in. A compelling hard money loan proposal includes collateral property details. Provide a description and detailed valuation of the property in this section. Also, the cost and scope of work will be a great addition to the proposal. In addition, a valuation report from accredited and licensed appraisers will help rationalize the property’s current value and its ARV or After-Repair-Valuation. Pictures of the property and the surrounding area will give the lender an important visual regarding the property. Also, include the plans, the rehabilitation schedule, perspectives, and illustrations of how the property will generally look after the repair. In describing the property, establish what makes your real estate project unique and highly marketable.
Be Ready on The Financial Aspect
Preparing a compelling Hard Money Loan proposal includes a detailed financial projection or a cash flow for the project.
Viability Study
A viability study on the financial aspects of the project when securing Hard Money funding is an essential part of the proposal. In this section, present to the lender that your project is feasible from a financial point of view. A comprehensive study of the required funding, all the costs involved, after-repair value, and how much you will make if you pursue the project. Enumerate all the possible and planned expenses and consider, among others, the acquisition, rehabilitation, financing, and marketing costs.
When deciding on your selling price, factor in your assumptions, costs, and projections. It is wise to check listings and prices near or around you for similar properties on the market. A substantial profit from the project after all the costs involved elevates your chances of getting approval.
Repayment and Exit Strategy
An exit strategy shows how you will repay the loan. Consider the loan purpose, interest repayments, and the loan term in your exit strategy. Present a brief sales or marketing plan for selling the property or generating rental income. Cite other alternative scenarios, good or bad, and discuss your plans to address them so you can exit from the loan at maturity.
Risk Assessment and How to Mitigate Them
In any project, there are risks that you should be aware of before implementation. It is best to know and acknowledge these risks at the onset so you can discuss your plans for mitigating them. Being risk-aware will minimize possible delays in your projects. Some examples of project risks are changes in property values, shifts in consumer demand, and an increase in loan interest rates which will affect demand for housing. Other types of risks emanate during project implementation. Some of these risks are delays in construction, unexpected expenses, or even delays in material supply. Having implementable backup plans to address possible project delays due to these risks makes for a more viable proposal.
Conclusion
Knowing the significant consideration and factors in a hard money loan proposal will increase your chances for funding approval. Aside from this, it is to your advantage to tailor your hard money loan proposal to satisfy what lenders are looking for in a project. Show them what they need: good numbers and marketable property. Convince your lender that you can manage the project and realize a significant income. In other words, a hard money loan proposal, if well done, will pave the way to an approval.
And if you still do not know where to start, consult a Hard Money Lender and seek advice. GL&L Holdings is always open for consultation. We are ready to hear your project proposal and offer guidance for free. Or if you already have a compelling hard money loan proposal, let’s talk about it and let us take care of the funds for you. Visit us, call us, or send us an email now. We will help you realize the real estate project you have always wanted.
