Borrow Hard Money for Investment Properties: Hard money loans are an efficient financing option for real estate investors. They’ve been growing in popularity over the last several years. Investors with various specialties use them to finance their projects. Whether they’re buying a rental property, looking for a quick fixer-upper, or a house flip, hard money loans offer a fast, reliable funding solution.
Investment properties are always high in demand, and quickly getting funds is imperative on the market. Hard money lenders will allow you to get a loan more than half the time a bank would. It also includes significantly less underwriting than a traditional loan.
When looking at investment properties for sale, UK investors, in particular, may benefit from spreading out the cost of the property over time through borrowing a mortgage. This is a popular way to purchase residential property, especially for those buying homes to live in.
While hard money may not be the best choice for anyone, it’s ideal for specific types of investment.
What is a Hard Money Loan?
A hard money loan is a financing solution and an alternative to traditional loan institutions for investors. It is asset-based, which means the property’s value secures the entire loan. The loans are usually short-term, from 12 months to five years.
Hard money lenders are companies or individuals, and they are often investors or former real estate investors themselves. Just as a group of individuals with assets can offer cash loans, they can provide hard money loans.
The criteria an applicant needs to meet vary from lender to lender, but they all have one thing in common: their focus will always be on the property’s value. Since the property itself is collateral, a hard money lender doesn’t make their decision regarding loan approval based on your credit score, tax returns, or credit history. Instead, they want to know the value of the collateral, which is the property in question. Less paperwork means that authorization happens quickly, and sometimes getting a loan takes no more than a week.
What Are the Requirements for a Hard Money Loan?
Applying for a private loan is usually quick and effortless. Find a reputable lender to discuss your loan scenario once you’ve found a property you want to invest in and sell or rent.
How do hard money loans work, you wonder?
Private money lenders are usually quite flexible, but each has its criteria and requirements.
Some lenders only work with fix & flip investors, while others gladly broaden their reach to single-family, multi-family, commercial, and mixed-use real estate.
Instead of collecting proof of your credit score like you would for a traditional institution, you need to focus on presenting the value of the property you want to get with private lenders. The lender will want to know about your plans, how quickly you can execute them, and what your return on investment will be. If they decide the property holds enough value, they will approve the loan.
3 Major Reasons to Use Hard Money Loans
Hard money loans make ideal solutions for several real-estate investment situations. They were created by investors for investors, with all the essentials in mind. It’s a specific loan type with many benefits tailored for particular investment projects. For years, investors have been choosing hard money loans over traditional loans for many good reasons.
Let’s check the 3 top reasons why investors choose hard money loans:
It’s Perfect for House Flipping & Fixer Upper Homes
Typical real estate loans are often hard or impossible to get, especially for investors who are only starting a business. Even when they get a loan, the payments will begin immediately, not leaving much room (or cash) for grandiose innovations right away. With hard money loans, lenders often offer to customize the loan according to the client’s needs and offer interest-only monthly payments.
While it doesn’t mean they will pay off the entire loan with interest-only payments, it still allows the investor to focus their funds on the property’s renovation. Constructions costs and permits can take a while, and being able to free up your funds toward working on your project will speed everything up.
Additionally, there are usually no penalties for early loan repayment. When an investor can renovate a property and sell it quickly, it’s a win-win situation.
The Process is Quick
We all know how time-consuming applying for a mortgage is, especially with the new mortgage lending regulations. Getting your funds may take a few months, which doesn’t sit well with real estate investors. The market moves fast, and waiting for a loan for a long time puts you at risk of losing the property to someone who can buy it right away.
Hard money lenders can approve a loan in a matter of weeks. Sometimes, even in a matter of days. The quick process is incredibly beneficial for investors funding large-scale development projects. They can’t afford timeline delays and each day lost costs them a lot. Applying for a hard money loan means beating all the competitors who will be waiting a few months for a traditional loan. Being fast means being successful in the real estate business.
Hard Money Lenders are Flexible
Since hard money lenders don’t have to follow the same strict regulations as traditional institutions, they have more room for customizing loan terms. The lender and borrower can be far more flexible. The lender can tailor the repayment terms to fit the borrower’s project plans. They also may reduce or eliminate some fees during underwriting.
In most cases, the lender can customize any part of the loan terms, including interest rates, loan-to-value, term lengths, etc. Some Miami hard money lenders allow borrowers to use cross-properties as an addition to the overall collateral so they can fulfill LTV requirements. The flexibility of hard money loans is one of their most significant benefits.
While they aren’t ideal for every investment type, investors working in several fields gladly choose hard money over traditional loans.
If you’re a real estate investor looking for a funding option to help you get a property quickly, hard money loans may be a good choice. They are mainly an excellent choice for investors looking to get funds rapidly and close investment deals in weeks. With their flexibility and ability to meet the requirements of the fast-changing real estate market, hard money loans are here to stay.