Investing in real estate requires resourcefulness, and the ability to secure financing is one of the most important skills needed in this industry. Traditional lending institutions like banks and credit unions are often reluctant to approve loans for investments in real estate. This is true even in cases when the property shows a lot of promise for potential returns. This can make it difficult for real estate investors to close the deal in time to turn the property into a source of profit. There are other financing alternatives, and hard money lending is one of the most promising ones. This is a private financial arrangement, so it offers more benefits than the terms offered by most banks. However, it is important for every borrower to conduct due diligence when accepting any loan.
Overview of Hard Money Loans
Hard money loans are provided from either private individuals or groups of lenders. The conditions of the loan tend to be more flexible, and this is one of the key benefits. For example, banks will often set interest rates on their loans that are non-negotiable. The other conditions of the loan are equally subjected to the arbitrary rules of the institution. These terms will rarely be adjusted or changed, and this is true regardless of the prospective return on investment in the proposal. Hard money lenders have the ability to work within the unique relationship between the borrower and the lender. This allows an additional level of flexibility when it comes to the terms of the loan. This can affect critical items like payment schedules, interest rates and the amount of the balance.
Banks will also ask for additional documentation, and there is no guarantee that the loan will be approved. According to Delancey Street, examples include financial statements from the borrower, proof of income and records of previous successful transactions. In addition, the approval process will often take a long time, and this can impair the process of obtaining closure on the investment property. When real estate investors apply for a hard money loan, the approval process can be expedited. This is a very attractive feature, and it allows investors to begin the process of turning a profit as soon as possible. Loan approval rates on the hard money loan can be as fast as a few days.
Summary of Hard Money Loan Benefits
Investing in real estate can seem complex and difficult. There are many steps necessary before the investment will pay off, and the confidence of the lender is absolutely critical. The terms of the loan should be carefully reviewed to assess the benefits, and borrowers must weigh these items against the possible risks. For example, hard money loans are beneficial when the investor can obtain a fast approval with a favorable interest rate.
The length of the repayment period can also be negotiated, and hard money lenders are more likely to offer additional extensions that would not be available through a bank loan. Once the funding is secured, the investment in the property can start to be recovered through the process of reselling. This means that time is a critical factor in how much profit can be made from the investment property. The hard money loan will enable the investor to begin turning the property into a source of revenue without any additional, costly delays.