How to Qualify for a Gap Funding Loan
You find a property to rehab and you go to our website to the “Qualify a Deal” tab. There you will find a simple deal analyzer that will tell you whether the deal will qualify for our program.
If it does, then go to the “Apply for a Loan” tab and submit information about the deal. We will get back to you in 24 hours or sooner to discuss the deal with you.
What Kinds of Deals Are Good for Gap Funding?
Put on a special pair of opportunity glasses. What are those? You need to see things others do not see. Here are some examples:
-A 2/1 in a 4/2.5 neighborhood with enough space to add a master suite
-A 3 story house with a dirt basement and attic space that can be converted into living space
-A house with 2 unpermitted bedrooms that can be cleared with the city and resold for market value
-A half-completed rehab with permitted plans for which the rehabber decided to put his money into the next shiny object
-The short sale that the bank is discounting enough to credit equity
What is the theme here: Find value-add projects!
The key is finding opportunities that others do not see. When new real estate investors graduate from the “How to Rehab” boot-camps, because of lack of experience, they do not see the kinds of projects we are talking about here. They are told to look for an ugly house that needs a light rehab. You know, the lipstick on a pig house. The paint and carpet rehabs. But those projects are in short supply in today’s market.
Have you heard the adage, “The ladder to success is most crowded at the bottom rung?” This perfectly illustrates the market today. The investors with less experience are looking for deals in the low to lower-middle-class areas for an easy rehab that improves existing living space. But you can’t do that in this market.
You have to look for houses in the middle- to upper-end areas for projects for which value can be added in the form of new square footage or the conversion of non-living space into living space.
Tip: Put together a one page illustration of what you are looking for so realtors and property finders can help you. Tell them to put on their opportunity glasses as well.
How Our Gap Funding Loan Program Works
When we loan money, we take on the second position loan. Most investors are aware that 99% of the hard money lenders in first lien position will only lend a portion of the purchase price and sometimes part of the rehab money. Whatever they provide, we fill in the gap with the rest. We also pay the monthly payments on both loans for you. In short, whatever the first lender does not provide, we pay.
Using Gap Funding Changes Everything for You
Consider what happens when you use all of your own money in a deal. You go to a first lender and they provide about 80% of the total project costs. That leaves 20% for you to pay. You put in your money, work hard on the project for months, and then resell the property. Your money has been tied up in the property for that whole period. And when you sell, you get ALL of the profit. 100% of it! You have taken all the risk and you receive all the reward. You deserve 100% of the profit, there is no question about it!
So when we take your place and provide the money you would otherwise provide, all we ask is that we receive part of the profit that you would normally have received. But we do not expect 100%. We only expect 50%. We want you to profit so you will come and borrow more money; and we want you to be motivated to complete the project on time and on budget so there is more profit for both of us.
Gap Funders Take on More Risk for More Reward
Allow me to take a minute to explain about risk versus reward. When we provide the rest of the money needed on a project, we are taking on more risk than the first lender. Since the first lender only loans up to 80% of the purchase price, even if the house has to be discounted 20% to sell quickly to pay back the first lender, he will get all his money back. In contrast, since the money we loan pays for the final 20-35% of the purchase price, the amount that would need to be discounted to sell the house is our money. Poof! Our money disappears into the thin air of the quick sale. That is what I mean when I say that our money is at the highest risk. Similar consequences can happen if the project takes longer than projected or costs more than budgeted. Our money is at greater risk than the first loan.
Keep in mind that because it is our money on top of the first loan, we are the first to take a haircut if the deal goes sideways. In California, that can be hundreds of thousands of dollars. That is why we consider it very fair to share the profit with you. We are depending on your skill, work ethic, good character, and your passion to get the project done. To compensate for this risk, we simply ask to share the profit with you, 50/50.
A few clients ask if it is possible to be charged just an interest rate. That program is also available if you provide the money we would have provided; then you share 100% of the profit. Keep in mind, that loan program requires at least a 20% down payment and monthly payments. (See the two programs below).
Some people lose perspective and tell me that someone who is providing money in a deal doesn’t deserve any of the profit because they are not doing any of the work. Remember that if you put in 100% of the financing needed in addition to a hard money loan, you get to share (with yourself) all the profit. When we provide the rest of the money needed, you share 50% of the profit with us.
Understanding how to work with an OPM source can revolutionize your business. We take on the risk that you normally would have by providing the rest of the money needed–instead of you.
We Offer Two Different Loan Programs to You
Nevertheless, if you have the ability to contribute the money we would other provide, you may do that as well. Below you will see a contrast between our interest only program and the equity share program.
Choose which one you prefer:
How can you start crushing it in this market? You have to start using OPM.
You can’t depend upon your own cash reserves or your business will suffer and before you know it, a lot of deals will pass you by.
Most of our clients choose the Interest Plus Equity Share program because they can do more rehabs. In this business, volume is everything. We always want to do the best quality work on every project. But if a person expects to make all their money on one deal, they will get frustrated really fast. I see real estate like a baseball game. The key is to keep swinging. Most of the time, you get singles and doubles. Sometimes you get triples or home runs, but I’m not going to cry over not always getting them. If we are only happy with home runs, we will lose a lot of games. And if you want to stay in the game, and be there for those higher pay-outs, you have to use OPM and be willing to share the profit.
How to Get Started
So, what do you need to do when you have a deal?
1) Go to the “Qualify a Deal” tab on our website, GapFunders.com and input the numbers of the deal. This will quickly help you to see if this is a deal we can fund. If it does,
2) Then go to the “Apply for a Loan” tab and tell us about the deal. We know you need move fast to get the good deals, so expect to hear back from us no later than 24 hours, although you will usually hear back sooner than that.
3) If the numbers work, we will have an appraisal ordered for you to determine the value after repairs. Be ready to meet the appraiser at the property with your plans in hand so he can base his value upon the project’s scope of work and the quality of the materials that will be used. Bring the addresses of comparable properties you used in case the appraiser is open to that.
The real estate market is experience a tremendous amount of activity and growth, the greatest in the last 5 years. Those who have the OPM available to fix and flip houses are making a killing right now.
Will you be part of this growth or will you sit on the sidelines?
Get Your First Loan from Gap Funders Now
Go to the Qualify a Project tab on our website and see if we can fund that deal that you found.
We look forward to working with you.