Why Hard Money Loans Can Be a Good Choice for Real Estate Investments


    Hard money loans, also called hard cash loans, are a type of loan in which a lender promises to pay a certain amount of money based on the current value of an item or portfolio. The collateral being offered is typically used as the guarantee for the loan, minimizing risk for both lender and borrower. Generally, hard money loans are utilized for short turnarounds between when the sale of commercial property and the acquisition of a new one. For example, a new owner may need funds to pay for marketing until the property is sold, or a new business owner may need cash to fund start-up expenses until he receives his own credit card.

    Rate comparison

    When comparing the rates of different Hard Money Lenders, the key takeaways include the number of days the processing time takes, the lowest closing price and the maximum amount of loaned funds. The amount of a Hard Money Loan is often between one to five times the market price of the property it is securing. Some lenders allow borrowers to build equity by paying off their existing mortgage or secured loans first.

    In order to qualify, borrowers must demonstrate a solid down payment and a verifiable income. Often, hard money loans carry interest rates higher than average; however, this depends on the lender and the specific circumstances of each application. If borrowers take the time to shop around, they can find several lenders with very competitive loan offers.

    Pros and cons

    There are pros and cons of Hard Money Loans. These pros and cons include the chance to access capital that is not available to individual homeowners; however, there are also risks associated with these types of loans. Investors are able to get the capital quickly, which can be critical in the event of a failure. In addition, the interest rates can be rather high. However, many investors see these as a great opportunity to make a return on their investment, even if they do suffer some losses on the deal.

    Risks associated

    There are some risks associated with Hard Money Loans. Investors are often able to obtain funding at attractive terms, which offer them excellent leverage. However, the terms of the financing agreement often contain a number of stipulations and legal language that can impact the investment. As a result, many investors tend to be wary of this type of financing. Because they require percentage points of interest, there is also the risk that investors who fail to pay off their debts will be subjected to foreclosure.

    Another proof of Hard Money Loans is that they can be used for almost any purpose that an investor may need. They can be used to purchase real estate, start businesses, make improvements to real estate, and provide short-term funding for personal use. When an investor uses hard money loans, he or she does not have to wait for conventional loan approval processes to complete. If the funding is needed right away, the use of a hard money loan can provide investors with immediate access to capital.