The Advantages of Hard Money Real Estate Financing

People are getting pretty creative these days in order to finance their dream homes or invest in prime real estate.

Some people are combining their love of travel with investing in prime real estate and becoming hobbyist real estate investors.

It’s not impossible, but it can be quite a challenge for beginner real estate investors these days who are looking to find good property to invest in and if possible to turn to a giant profit.

Since a lot of the banks have raised their lending standards to a level that even quality, trustworthy and high-credit borrowers are often unable to qualify. It used to be at one time you could turn to the small community banks for these kinds of commercial loans. They’ve been tightening their standards as well though. There’s just one option left these days for investors in commercial real estate – hard money financing.

Yes, hard money financing is an unregulated lending business, and it isn’t uncommon to come across unscrupulous lenders. For the most part though, it does operate as a legitimate lending industry. The fact that it’s unregulated attracts private lenders and lending businesses that wish to make a healthy profit on their lending.

The good side to accepting hard money financing is that you qualify far more easily than you do with regular financial institutions. You don’t even have to file too much paperwork if you’re borrowing to make a commercial investment with.

When it comes to commercial properties, they don’t look at the debt coverage ratio to see if they should grant a loan. They don’t even ask freelance investors if they have a source of regular income. These lending practices can be such a relief to real estate investors who operate independenty.

You can get creative with the way you put up collateral for a hard money loan. For instance, if you were to deal with a regular bank, they wouldn’t ever consider a cross collateralization option. When it comes to hard money financing, they actually welcome it.

These lenders don’t even need to see that the property you are investing in is in good condition. The house could be in a great location close to the beach but be in a total styate of disarray with many repairs needed and still be a good investment.

In fact the hard money lenders often specialize in broken down properties that investors can buy, repair and flip. They actually have a term for this – after repair value.

They’ll value the property you’re buying for what it will be worth once you’re done fixing it up. It’s great bit of flexibility that you could never get working with traditional financial institutions.

There’s a downside to hard money financing, of course. To begin with, all this flexibility comes at a price. These hard money loans are far more expensive than traditional loans. They’ll charge higher closing costs and higher interest rates – in the region of 15%.

With most of these loans, they ask you to only pay interest for the period of the loan. And then, you make a balloon payment at the end.

While they don’t really set the bar high to qualify for a loan, they more than make up for it by requiring a high level of equity in the deal – usually about 60%.

If you’re looking to find a beach house to invest in there are many ideal locations. I am personally in Southern California love it!

Learn how to live right at howfo – the web site that shows you how to do almost anything!

Leave a Reply