What are hard money loans? These are privately financed loans that can be used for real estate investing. Hard money loans are short term, most only for 6 to 24 months. The interest rates are high, usually 12% to 18%. However, if you intend to resell the property fast, then you will only be paying the high interest for a short time. If you intend to keep the property and rent it out, then hard money would not be the way to go.
Not all properties would qualify for hard money financing. The private lenders will want to determine the property value after repairs and then will finance usually 60% to 70% of that. As an example, a property is selling for $ 50,000.00 with $ 10,000.00 needed in repairs with an after repair value of $ 90,000.00. If you can find a hard money lender to finance 70% ($ 63,000.00), then this would pay the $ 50,000.00 asking price plus the $ 10,000.00 in repairs with $ 3,000.00 remaining.
Some benefits with getting a hard money loan are as follows:
1. In some circumstances you can get 100% of the money you need if the purchase price is less than the 70% of the after repair value. Your only expense would be the closing costs on the loan.
2. These loans are made fast, usually closing within 10 days. If you are in a situation where you need to close fast, then a hard money loan could be the way to go.
Some things to consider when getting a hard money loan is how many points you have to pay at closing. A point is 1% of the loan amount. The points could be anywhere from 2 to 10. Be sure and find this out up front as you will need to have this amount at closing.
As with a conventional loan, some hard money lenders will charge a prepayment penalty. Verify this and the amount of the prepayment penalty as you will need to consider this when figuring your profit.
Where can you find a hard money lender? Most mortgage companies will have a list of these lenders. Also real estate investment clubs will usually have some attend the meetings, plus some of the other real estate investors at the meetings will have connections with some hard money lenders. The newspapers will usually list classified such as "private lender" or "money to lend". You can also do a Google search for hard money lenders and will come up with many sites.
Hard money loans are not for every real estate investing deal, but sometimes when you need to turn over a property fast and it will need a lot of repair, then this type of loan could be a good option.