Understanding How Hard Money Loans Help Property Investors

by / Friday, 04 August 2017 / Published in Financing Blog

Hard money loans are a great tool to have in your property investing kit. Funded by private investors and secured by real estate that you already own or are purchasing, a hard money loan is a short term loan. Payments of the loan are usually interest only with a balloon payment at the end of one to five years.

A hard money loan can be a great asset in investment situations like acquiring land or developing a property. The quick nature of the loans are ideal for fix and flips. This is a type of loan that also can be accessed by someone with credit issues. When an investor needs to act quickly to snag a desirable property, a hard loan can be the difference between success and failure. Here are some ways that a hard money loan can help you as a property investor.

Quick Funding

Applying for a hard money loan is a one or two day proposition. Compared to using a bank to get financing, a hard money lender can fund the loan at the speed of sound. In most situations, hard money loans can be funded within a week. A conventional bank takes 30 – 45 days to fund a loan. Many property investors rely on quick funding to get a competitive edge on other bidders. Hard money loans give them the advantage of having the money on hand and being able to close the sale quickly.

Loan Amount Based on Property Value

The amount of money that a hard money lender can extend to you is based on the value of the property you are offering as collateral. Your credit rating runs a distant second in lending concerns. When the loan amount is based on the value of the property, what are credit and income issues for conventional loans are not so concerning for hard money lenders. If there is sufficient equity in the collateral property to cover the value of the loan, a deal can be made.

Preservation of Liquidity

Paying interest only installments leaves more of your cash available for additional property investment opportunities. When the balloon payment is due, money from another property sale can be used to pay off the remaining amount of the loan balance.

Property Investors utilize hard money loans for a variety of reasons. Hard money can be your source of financing when banks are not an option or the when the loan amount is needed in a short period of time.