Is Hard Money A Viable Source Of Funds For Real Estate Investing Deals?
A lot of real estate investors rely on hard money as a source of cash to finance their real estate investing deals. Hard money has been quite easy to get as long as the property met the lender's requirements, at least until recently.
Most hard money lenders have recently tightened their lending requirements, but they are still quite easy to get compared with regular mortgages.
Should hard money be a main source of financing for your real estate investing deals?
What is hard money?
Hard money is lent using real estate as the collateral. Most hard money lenders do not need the borrower's credit to lend money, but depend on the collateral only.
Most hard money lenders now require some credit application when lending money, however they still place most of the emphasis on the security property. Most hard money lenders will need to see at least 40% equity on the security property.
Usually, hard money can be available in just a few days.
Therefore, interest rates for hard money are usually higher than traditional mortgages. Most hard money loans charge at least 18% interest plus points.
The payments are usually interest only, meaning that the amount you owe remains the same. Hard money is made available only for a few months, rarely more than 6 months.
When buying a rehab property, it is unlikely to get a traditional loan. However, a hard money loan would come in handy.
Your exit strategy after you fix it up must involve paying off the loan within a few months.
In the current market where it is getting harder and harder to sell a house, it might be a risky venture to hope you will sell the property in good time to pay off the hard money loan.
You have to pay high interest for every month you keep the property under a hard money loan, eating into your profits.
A hard money loan is not feasible for buying properties on terms.
You will need to identify a reliable hard money lender in your area that specializes in funding deals like yours.
A relationship with a good hard money lender would serve your real estate investing business well.
Usually you will need to show that your exit strategy is viable. A hard money lender's worst nightmare is an inventory of property sitting in their balance sheets tying up their cash.
They need to know that they will get their investment in a few months at the very least.
Present as much helpful information as possible, such as similar deals you may have done previously, potential buyers, rehab crew, your experience as an investor, etc. They will be more comfortable lending you their money for the deal.
Ultimately, an hard money loan is made viable by the property and a quick exit strategy that pays it off in as little as 3 months.
No matter what type of deals you have, selling your houses fast is important to the success of your real estate investing business. Find out how an interactive real estate investor website that also builds your buyers list can help you sell your houses fast even in a depressed real estate market.
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