Real estate investing has unique
challenges that differ from buying a home for yourself.
Often, investors need money quickly to
close a deal. Hard money lenders can help you with that.
It is not hard to find hard money
lenders when you know where to look.
This article explains how hard money
lending works, when it makes sense, and how to find hard money lenders.
What Are Hard
Money Loans?
Hard money loans are asset- or
collateral-backed loans. It focuses more on the property you want to invest in
and the deal you made rather than your credit score and income.
Hard money lenders focus less on your
ability to repay the loan because the property guarantees funds if you default
on the loan.
Although hard money lenders consider credit score, income, and experience, the underlying asset is critical.
How Much Is a
Hard Money Loan?
Traditional loans have lower interest
rates because you take out a loan for 15 or 30 years.
Hard
money loans are much shorter, for a year or two. They are sometimes
referred to as bridge loans. Hard money loans typically cover costs for
securing the property and repairing it. Then, investors turn to long-term
mortgages or sell the property to repay the hard money loan.
Consequently, hard money loans have
higher interest rates, like 8% to 15%.
Typically, they require you to put down 25% to 40% equity, depending on the deal.
When Should You
Get a Hard Money Loan?
Hard money lenders can finance
properties traditional banks will not. Hard money loans work best for investors
who need money with a few days, not a few weeks or months.
Investors seeking to add rental
properties to their portfolios or “fix and flip” units to generate a profit
work with hard money lenders. The approval process is faster and simpler,
translating to a quicker closing time.
Usually, you need a credit score of at least 600. Some lenders also mandate experience with real estate investing and cash reserves to cover expenses like taxes, HOA fees, and insurance.
How to Find Hard
Money Lenders
You will find hard money
lenders as individual investors, small businesses, or private equity firms.
Each has lending requirements like property value, credit score, loan-to-value (LTV) ratio, or real estate experience.
Here are a few ways to find hard money lenders:
· Perform a web search for “hard money lender” in your area
· Check websites about real estate investing or directories like LinkedIn
· Join a real estate investment association (REIA)
· Collect referrals from real estate agents who are experienced with investment properties
Network with people in your area to create relationships with other investors and lenders. When you find the right deal, you can lean on that network to help you secure the investment. Before accepting a hard money loan, weigh the costs, risks, and benefits for the investment property.
Post a Comment