For real estate investors, the hunt is on for the next big property. Whether they are investing in commercial real estate, house flipping, or even renting, finding the next big property is always top of mind.
Real estate investors looking for properties know how important it is to have capital and cash flow. If either of these is disrupted it can be a nightmare to get the next property!
For those looking to move quickly on an investment before it gets snatched by other investors, hard money loans can be an ace in the hole. For fast-moving investors, these quick loans can be deal savers, but they come with a price tag.
Below we cover everything you need to know about hard money loans:
What Are Hard Money Loans
Hard money loans are asset-based loans that are secured in value, not a credit score. This means for real estate investors, a hard money loan is attached to a real estate property, not the investors credit.
Some hard money lenders can even tie a hard money loan to the after repair value of a property, which means they can lend on that after repair value (ARV) instead of the borrower’s credit.
Hard money loans are perfect for real estate investors, as they can move quickly on properties. Traditional bank loans require a lot of paperwork, and long wait times for approvals, not to mention inspections and more. Hard money loans since based on the property value can approve a loan in 24 hours or less, and can even fund within two days.
Hard money loans offer real estate investors flexible options to fund their properties, either to flip or rent.
How Hard Money Loans Are Differ From Bank Loans
Traditional loans offer a lot of benefits for homeowners and some businesses. For those that are investing in real estate, hard money loans may offer more flexibility and help investors move quickly on properties.
One of the major differences in these two loans is how the value of the loan is accessed. For those using traditional loans, it is often based on previous borrowing history, income, credit scores, and background checks. For traditional bank loans, the applicant is more thoroughly vetted and they base the interest rates and terms based on the borrower.
Hard money loans base the value of the loan on the property and the after repair value of a property. Instead of background checks, hard money lenders run comps on the property and evaluate the repair and investment.
These loans are valued in vastly different ways, so interest rates and loan term lengths vary greatly. Bank loans, such as a mortgage can be anywhere from 10-30 years, but interest rates can vary widely depending on the borrower. These work well for homeowners, but for fast-moving investors not so much.
Hard money lenders take on more risk by basing the loan in the real estate value, so their loans are shorter, and have higher interest rates. Interest rates are high, from 12% or higher for hard money loans. These loans can range from 6 months to 2 years, but as most are short-term investments, such as flips. This makes hard money a good option for fast-moving real estate investors with big plans for properties.
How To Use Hard Money Loans For Investing
Hard money loans can help real estate investors with many different types of investments, Whether commercial, house flips, or even rentals, real estate investors can use hard money loans for a wide variety of situations. Hard money lenders, or private money lenders, offer a wide variety of loans for real estate investments.
These are the most common types of hard money loans:
- House Flip Loans
- Home Rehab Loans
- Bridge Loans
House Flip loans, or fix and flip loans are most commonly used by house flippers. This type of loan is used to fund the purchase, repair, and flip of a property. The house flippers buy homes, make repairs and sell them for a profit. With a hard money loan, these house flippers can get the fast funds they need to get their projects completed quickly.
Home Rehab Loans are used to fund the repairs on a property. This can be used for rentals, flips or commercial investments. These loans are still based on the real estate value of a property and can be used to repair or improve a property’s value to attract more tenants, or to repair property for a sale.
Bridge loans are used to cover funding gaps for real estate investors. They also can be used to prevent foreclosures on properties and be refinanced. These loans can also be a final push to get a property repaired to sell and can be a very flexible and useful tool for a real estate investor.
Hard money loans are a great tool for any real estate investor and can be used for a wide variety of investments.
In Summary
Hard money loans are a secret tool for any real estate investor. They can be used to fund properties quickly, and require minimal hassle for real estate investors. While not ideal for homeowners, these loans offer short rates and funding times within days, making them a lifesaver for investments that need a quick injection of income.
