Why is it that real estate has often been counted as a way to invest and build wealth? Because when you buy a property, you have a chance to put more money into it to increase its market value, turn it into a rental unit that will generate income, or keep it for a little while before you sell it. The bottom line is unlike stocks or bonds, which you generally don’t have as much control over if you’re not running a company, a real estate investment that’s hands on is one that you do have control over. You do still have to research and know the market that your working in in terms of who your buyers could be and what you can rent or sell for. But by putting in work to increase the property value you can beat the market. If you’re new to real estate investing and are looking for a way to finance a property purchase without a mortgage, a hard money loan in Indianapolis might be the right way to do it.
Purchases Hard Money Loans Can Be Used For
A hard money loan can be used to purchase just about any kind of property on the market. Generally they are used for home flipping, a form of real estate investing you may have seen before on TV where a rundown home is rehabbed before being returned on the market. But a hard money construction loan could also be used to build brand new homes or commercial buildings depending on how long the construction project would take. Basically, a hard money loan is intended to be used to fund just about any investment or development for a short period, or until it can be replaced with a mortgage.
Why Hard Money Loans Can Be Better Deals Than Traditional Mortgages
Usually if you’re trying to get a house that you intend to live in for years to come, a traditional government-backed mortgage or private mortgage is the recommended way to go. But if you’re looking to get into investing in real estate for a profit where closing a deal on a property has to be done quickly, that’s where a hard money loan could be better than a mortgage. Why is that?
Both mortgages and hard money loans are secured by the property being purchased, but usually mortgages are only approved on the basis of the borrower’s ability to repay them over an amortization schedule, while hard money loans are generally based more on the equity of the property being purchased. Because of what happened in the 2008 subprime mortgage crisis, laws like the Dodd-Frank Act have made getting approved for a mortgage much tougher. Even for those who may meet credit score requirements, income requirements and not have any foreclosures or defaults on their record, the process to go through their eligibility and release any mortgage funds to them could take weeks or even months, a period you can’t wait when you are trying to purchase a property quickly.
You could get a hard money loan within days if the contract you negotiate with the lender is favorable and due diligence has been done on the property. While you still need to have income in order to prove you can repay the loan, your current cash reserves and credit history are much less of factors than the property value and its after repair value (ARV). You also could get a bridge loan, a hard money loan using equity in other properties you own that can be used to fund a new property investment as you wait for an already completed one to sell.
Risks That Come With Hard Money Loans
It is important to know that while there are many advantages to hard money loans, the risks can be quite numerous as well. You have to repay them over a much shorter period which will usually mean not only higher payments than regular mortgages but higher interest rates as well. While there are some laws that govern these loans, they are not as closely regulated as regular loans which means you had better read your contract carefully before signing. The bottom line is if your real estate investment doesn’t go as planned, you could stand to lose a lot of money quickly.
If you’ve decided hard money loans in Indianapolis are what you need, all you need to do is locate a lender near you. Just make sure to do your research on the lender to see if their record of making loans is solid and they don’t have complaints against them. Contacting a real estate agency or mortgage broker is one way to find this kind of lender.