Tag Archives for " Real Estate Investments "

Using Hard Money Loans for Real Estate Investments

Investing in real estate can be a lucrative avenue for building wealth, and it’s also an effective way to inject some diversity into your portfolio. While real estate investment trusts (REITs) and real estate crowdfunding allow you to invest passively, some investors may prefer to own property directly. If you’re not comfortable parting with a substantial amount of cash up front to purchase real estate, a hard money loan may be the answer. While this type of loan has advantages over traditional financing, you should be aware of some potential downsides.

How Hard Money Loans Work

Hard money loans, sometimes referred to as bridge loans, are short-term lending instruments that real estate investors can use to finance an investment project. This type of loan is often a tool for house flippers or real estate developers whose goal is to renovate or develop a property, then sell it for a profit. Hard money loans are issued by private lenders rather than mainstream financial institutions such as banks.

Unlike traditional bank loans, the ability to obtain hard money financing isn’t determined by the borrower’s creditworthiness. Instead, hard money lenders use the value of the property itself in determining whether to make the loan. Specifically, lenders focus on the “after repair value,” or ARV, which is an estimate of what the property will be worth once the renovation or development phase is complete.

property-asking-price

The Pros

There are several good reasons to consider getting a hard money loan instead of aconventional mortgage from a bank. Here are the main benefits this lending option offers to investors:

  • Convenience Applying for a mortgage is time-consuming, particularly thanks to new regulations on mortgage lending implemented as part of the Dodd-Frank Act. It can take months to close on a loan, which puts investors at risk of losing out on a particular investment property. With a hard money loan, it’s possible to get funding in a matter of weeks. That’s important if you’re funding a large-scale development project and can’t afford deviations from the timeline to completion.
  • Flexible terms Because hard money loans are offered by private lenders, it’s possible for investors to have more room for negotiation of the loan terms. You may be able to tailor the repayment schedule to your needs, for example, or get certain fees, such as the origination fee, reduced or eliminated during the underwriting process.
  • Collateral With a hard money loan, the property itself usually serves as collateral for the loan, but again, lenders may allow investors a bit of leeway here. Some lenders, for instance, may allow you to secure the loan using personal assets, such as a retirement account or a residential property you own.

7-things-to-consider-if-you-wish-to-become-a-real-estate-crowdfunding-investor-2

The Cons

Hard money loans aren’t a perfect financing solution, and there are two primary drawbacks to consider:

  • Cost Hard money loans are convenient, but investors pay a price for borrowing this way. The rate can be up to 10 percentage points higher than for a conventional loan. Origination fees, loan-servicing fees and closing costs are also likely to cost investors more.
  • Shorter repayment period The purpose of a hard money loan is to allow an investor to get a property ready to go on the market as quickly as possible. As a result, these loans feature much shorter repayment terms than traditional mortgage loans. When choosing a hard money lender, it’s important to have a clear idea of how soon the property will become profitable to ensure that you’ll be able to repay the loan in a timely manner.

The Bottom Line

Hard money loans are a good fit for wealthy investors who need to get funding for an investment property quickly, without any of the red tape that goes along with bank financing. When evaluating hard money lenders, pay close attention to the fees, interest rates and loan terms. If you end up paying too much for a hard money loan or cut the repayment period too short, that can influence how profitable your real estate venture is in the long run.

Source: WMAPROPERTY

It’s not about property ownership it’s about control! To get more details, visit 👉 Property Millionaire Intensive

8 Reasons to Use Private Lenders for Real Estate Investments

  1. Private lenders for real estate are offering competitive interest rates. Since a loan on an investment property is secured by a recorded Deed of Trust, private lenders can offer interest rates that are competitive with the open market. Additionally, since private lenders for real estate are looking for investment properties, they are more likely to offer these rates on properties without a current cash flow than traditional banks, which are still restricting lending.
  2. Loan repayments are still made to a loan servicing company. Private lenders use fully insured and licensed loan servicing companies, so your monthly payments are made to a recognized institution, not to an individual.
  3. It is less frequent for private loans to be packaged and resold. For real estate look specifically at you and your property to make an investment decision, and once they have found a good risk they are unlikely to sell their investment. This allows you a measure of confidence that you will still be doing business with the same partners for the life of a loan.
  4. Private loans are faster and more flexible than other loans options. Since private lenders use the same investing principles as you do, they are able to make a quick decision, allowing you to avoid the lengthy process of traditional bank underwriting.
  5. Your FICO score is not as crucial with private lending. Private lenders for real estate do not rely as heavily on your FICO score, and instead use their investing experience to determine if you and your property are a good credit risk based on all factors.
  6. Private lenders’ debt service coverage ratio is less strict. Since private lenders do not have the same underwriting process as traditional loan servicing arrangements, they have more flexibility to look at other factors influencing loan repayment.
  7. Offer shorter terms. Shorter terms allow you to secure the property, avoid prepayment penalties, and look to traditional financing once the property is stabilized if necessary.
  8. Real estate give you better access to loans, while keeping traditional loan benefits. With private loans, you still have the same protections as with traditional bank loans, but are able to take advantage of a hard money loan process that moves more quickly and is inherently more flexible than conventional permanent financing.

Article Source: EzineArticles.com

For More Information, Please Visit the following Website

Property Millionaire Intensive