Beginner's Guide To Getting A Hard Money Loan

by William Bronchick, JD

So, you just got that great bank-owned property under contract and now you need a loan to buy, fix, and flip. You went to three hard money lenders, and they turned you down. Why? Because you STINK at selling your deal.

That's right, you need to learn how to SELL your deal to a lender.

You start by getting a binder from the office supply store with a set of tabs you can print on. Here's what you need in each tabbed section:

About Me. This section should contain a FNMA 1003 loan application, a copy of your credit report, a copy of your driver's license, and a brief resume of your experience. If you have no experience, at least put a list of books and seminars you've taken. A list of references would help, too.

Purchase Contract. A copy of the purchase contract with addenda goes here.

Appraisal. Ideally an appraisal, but at least a real estate broker BPO (broker's price opinion) goes here.

Insurance Binder. A copy of a commitment to insure from your insurance provider goes here.

Title Commitment. A copy of the title commitment goes here.

Photos. Detailed, color photos inside and outside of the property go here.

Inspection. Have a professional inspection done of the property and put the report here.

Repair estimate. A repair estimate from a licensed general contractor and a copy of his license go here.

Numbers. Insert a spreadsheet of the breakdown of the numbers: your purchase costs, closing costs, holding costs, repairs, realtor fees, etc.

Timeline. An outline of your construction project goes here.

Now, you've got a product you can SELL. Go out and approach hard money lenders and see if you don't get much better results!

About the author...

William Bronchick, J.D. is an author and attorney who regularly presents workshops and do-it-yourself seminars at real estate and landlord associations around the country. He is the president and co-founder of the Colorado Association of Real Estate Investors.

NEW: The LLC-IRA for Real Estate Investing

NEW: The LLC-IRA for Real Estate Investing by William Bronchick, JD

By now I am sure you've heard that it is legal, permissible, and profitable to invest in real estate using your self-directed IRA, SEP, or Roth IRA. If you've been using this technique, you know the drawbacks: delays in funding, fees from your custodian, potential lawsuits against your IRA.   Well, there's a solution...the LLC-IRA.   Instead of investing directly from your IRA, you set up a single-member LLC that is owned by your IRA. Your IRA account is the MEMBER of the LLC. The LLC is a legal entity that has powers and protections that are not possessed by any individual or by any regular IRA. The combination of the self-directed IRA custodian and the LLC produces great results. This is an entirely new type of LLC, not your run-of-the-mill LLC you may have done before. It generally requires an attorney to draft the operating agreement and provide an opinion letter to your IRA custodian. If the LLC operating agreement is improperly drafted, the entire LLC-IRA may be disqualified and taxed.   Lawsuit protection of your IRA account   A single-member LLC (Limited Liability Company) is a business entity that gives the liability protection of a corporation but is "disregarded" (ignored) for federal income tax purposes. It is a separate legal entity under state law, so creditors of your LLC (as in the case of a tenant injured on the property) cannot go after the member (your IRA account) or you (the Manager).   "Checkbook" control   As manager of your LLC-IRA, you can write checks as you need to for purchasing property, paying property expenses, or loaning money. If you want to do a deal in a hurry, you can run down to your bank and get a wire or certified funds the SAME DAY, as in the case of a foreclosure auction. Keep in mind that any transaction you can't do in your IRA account, you are also prohibited from doing in your LLC-IRA. You should not attempt any transaction in your LLC-IRA without competent tax and legal advice.   Steps to form your LLC-IRA First, you need to transfer your existing IRA to a custodian that allows complete self-direction of your account. Big firms like Fidelity and Schwab generally don't allow you to direct your account into real estate investments. Second, you need to hire a professional to create the LLC. Third, you "fund" the LLC by directing the money from your IRA custodian to the LLC's bank account. Fourth, you start investing in your LLC-IRA. Custodial fees are much lower because the IRA only has one asset, the LLC. Is this all legal?   The legality of an IRA owning an LLC is based on the case Swanson vs. The Commissioner in 1996. In Swanson, the court ruled in favor of the taxpayer using a corporation owned by his IRA, where he was the president. The LLC, by implication should be the same. Should you have any questions about the legality of your LLC-IRA, speak with a qualified attorney to advise you through the process. About the author... William Bronchick, J.D. is an author and attorney who regularly presents workshops and do-it-yourself seminars at real estate and landlord associations around the country. He is the president and co-founder of the Colorado Association of Real Estate Investors.