Hard Money Loans - Real Estate Funding Model
Need a layman's guide to the ins and outs of hard money loans? We'll give the details on hard money lenders and appropriate use of these loans for real estate investing. Continue reading for the negatives and positives of the use of hard money for investment purposes.
One of the last resorts to fund your real estate deals should be a hard money loan because you are dealing with experienced investors who are on the lookout for good returns on their money which makes it amongst the most expensive money for you to borrow.
Hard money lenders are third party lenders and unlike the big institutional lenders charge interest rates above market rates. Hard money lenders typically require 5-10 percentage points higher interest rates than private money or conventional lenders. Plus, hard money lenders will typically charge you "points" on a loan which is pre-paid interest thereby making this a rather expensive funding alternative.
So, on the plus side, hard money loans are generally worth approximately 65-70% of the after repair value (ARV) of the property in question. This is beneficial because it allows you to obtain the necessary cash to finance renovation costs as well as the purchase price. This means you can potentially get into a deal with little to no money down if the after repair value to cost ratio is high enough.
If you are trying to fund real estate investments and have poor credit, hard money loans are a viable option. Hard money lenders take the security of the loan into consideration and do not consider character or loan serviceability. For those who are on a strict time limit, hard money loans are also attractive since there is little to no wait time for approval.
So where do you find hard money lenders? The first place to look is in the "money to lend" section of your local newspaper. The second would be at a meeting of your local real estate investing association. Local hard money lenders will often attend to solicit new business. Finally, don't forget to check online - just search for "hard money lenders" or "hard money loans".
Have you ever pondered when you should choose to borrow from hard money lenders for investing in real estate. Hard money loans will often be one of the last resorts for funding your real estate deals because you are dealing with experienced investors who are looking for good returns on their money. Third-party lender who charge interest rates higher than the prevalent market rates for lending is called an hard money lender. Another benefit of hard money lending is that instead of lending based on your creditworthiness or character, money lenders will lend based on the security of the loan.
Published May 18th, 2007
Filed in Business, Career, Real Estate
