The Advantages of Hard Money Loans
Real estate investors resort to the methods of hard money loans since decades. They are one of the most preferential options when it comes to financing your real estate deal. You would need experience to fully benefit out of such deal, and there is no shame in educating yourself on the matter, thus you should know the following advantages and troubles that might come in the process of taking a hard money loan.
- The Quickest Method to Fund Your Real Estate Deal
Let us slow down a bit and look at all the different options to fund the purchase of a building or a property. There are three general options – apply for a bank loan, obtain a mortgage or apply for a hard money loan. The first two techniques are linked to banks, whose whole workflow is structured in such a manner that they try to minimize their risks as much as possible. That means that they will run a thorough background check on you, in case that you are a new customer of theirs. They will check your credit score and only then you might begin the long procedure.
Hard money lenders don’t care about any of those things. There are scenarios in which you will able to obtain the required funding in just a single day. Obviously, that will happen when the hard money lenders have gotten to know you and you have already done a few deals with them. The factors that are important to the hard money lender is the property which you will purchase, what the down payment size is and what part of the property are you buying. The latter meaning whether or not you are buying the full property or just a portion of the equity. Taking all of that into consideration the hard money lender might fund you or not.
- Possibly The Only Funding Option for Most Deals
The most common deal on the real estate investment market which aims to maximize profit in the shortest amount of time is the fix and flip. It is generally done in a period of twelve months at most. If you go to a bank and apply for a twelve-month loan of such size, you will almost always be declined as that is not a part of their business model. The risks to rewards ratio would be too small for them, considering the interest rates they are using, and they would not be able to raise their own interest rates without negatively influencing their own public image.
Hard money lender business on the other side are usually private entities and follow a completely different business model which aims to gain max profit in a short time duration while acquiring a larger portion of the risk.
Those two are the main advantage which hard money loans have to offer to real estate investors, in order to make their business of conduct much easier and smoother.