Hard Money Financing: The Leverage You Need For Taking Your Real Estate Business to the Next Level
Hard money financing is an asset-based loan, which means that the loan is secured by an asset, usually real estate. It is more like a bridge loan that you take to meet your money requirements till the time a long term loan is arranged.
A traditional loan is generally a low interest loan intended for the end user, a person or family buying a house to move in. Such home loans are normally long-term loans with lot of conditions attached. For example, if you were to pay off the loan early, you have to pay a penalty. Moreover, it takes several weeks to some months, to complete the paperwork before the funds are released. Such conditions do not work well in real estate where time is of great value and delay means missing out on a great deal. Add to that, the fact that it is not easy for all to obtain a loan from a traditional home loan provider and you find yourself staring at an opportunity but can do nothing about it.
Hard money financing costs more. The interest rate may sometimes be above 9% and may go up to 13%, which may seem to be pretty steep when compared to what banks charge. However, in real estate there are times when interest cost does not make a big difference when seen from the angle of a developer or reseller. Return on investment in real estate far outweighs the cost of financing and hard money financing may just prove to be the leverage that they need. While a developer can use the funds to build a new house, a reseller may use the funds to pick a distressed property to refurbish or complete an ongoing refurbishment project.
Hard money financing is completely based on collateral, the parcel of real estate against which the private lender advances the loan amount. Since the loan is secured against real estate, there is less paperwork. Not only you get the funds when you need there is no penalty on early payment.
In real estate there are times when all your money is locked up and you need just that little bit of extra money to help you turn a property. Hard money financing can also be of great use if you are in the business of buying and flipping properties and want money to see you through till you find a buyer. There are so many opportunities in real estate; what with foreclosures
being offered at rock bottom prices and dilapidated houses with after repair value of 3-5 times the as is price. Only a private lender will be able to appreciate the low risk and profit potential hidden in your proposal.
A traditional loan is generally a low interest loan intended for the end user, a person or family buying a house to move in. Such home loans are normally long-term loans with lot of conditions attached. For example, if you were to pay off the loan early, you have to pay a penalty. Moreover, it takes several weeks to some months, to complete the paperwork before the funds are released. Such conditions do not work well in real estate where time is of great value and delay means missing out on a great deal. Add to that, the fact that it is not easy for all to obtain a loan from a traditional home loan provider and you find yourself staring at an opportunity but can do nothing about it.
Hard money financing costs more. The interest rate may sometimes be above 9% and may go up to 13%, which may seem to be pretty steep when compared to what banks charge. However, in real estate there are times when interest cost does not make a big difference when seen from the angle of a developer or reseller. Return on investment in real estate far outweighs the cost of financing and hard money financing may just prove to be the leverage that they need. While a developer can use the funds to build a new house, a reseller may use the funds to pick a distressed property to refurbish or complete an ongoing refurbishment project.
Hard money financing is completely based on collateral, the parcel of real estate against which the private lender advances the loan amount. Since the loan is secured against real estate, there is less paperwork. Not only you get the funds when you need there is no penalty on early payment.
In real estate there are times when all your money is locked up and you need just that little bit of extra money to help you turn a property. Hard money financing can also be of great use if you are in the business of buying and flipping properties and want money to see you through till you find a buyer. There are so many opportunities in real estate; what with foreclosures
being offered at rock bottom prices and dilapidated houses with after repair value of 3-5 times the as is price. Only a private lender will be able to appreciate the low risk and profit potential hidden in your proposal.