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The titans of real estate share a number of traits amongst themselves. They are clever individuals with a strong sense of personal responsibility and a great ability to find a bargain. They also often share a means to obtain the money they require the purchase the real estate they desire in the first place. Their secret is something known as a hard money loan.
What Is A Hard Money Loan?
Some real estate investors have a number of properties in their portfolio at the same time. They are juggling all of those various payments and expenses, and this can tie up their funds in a big way. It may be difficult for such an investor to get a traditional mortgage loan from a bank. The bank may deem them to be too big of a risk to lend the money. However, there is another option.
Hard money loans are a form of lending that involves putting down an actual asset as collateral for a loan. In other words, the borrower is putting something at stake rather than asking the lender to simply take their word and their credit score as proof of their likelihood of repayment.
Length Of Loans And Their Usefulness
A hard money loan is a short-term loan that typically ranges between six and twenty-four months. The purpose of such a loan is not to purchase a house to live in, but rather to purchase a house that can be remodeled or otherwise upgraded to resell.
You may have heard of people who “flip” houses for a living. What they are doing is using a hard money loan to obtain the property that they need in order to upgrade it and then sell it on to the next person for a profit. Those who are skilled at doing this can turn a tidy profit for themselves in as little as a few months with hard work.
Never Slowing Down Progress
Real estate investors know that some of the very best deals in real estate do not stay on the market for very long. If they do not act quickly to snatch up those deals someone else will. It is nice to know that it is not necessary to have one-hundred percent of the capital that you need ready to go to purchase properties if you use hard money loans.
Most individuals do not walk around with huge sums of money that they can throw around to purchase properties outright to upgrade them. Those who do have that kind of money are not looking for loans in the first place. For everyone else there is the option to borrow a hard money loan to simply make the upgrades necessary and then flip the house for a profit.
Why This Can Work In Nashville
It is pretty clear that this hard money loan borrowing strategy would not necessarily work in every single real estate market in the country. Only certain markets even have the capacity to allow a real estate flipper to make his or her money doing these kinds of deals. Fortunately, Nashville is one of those markets.
Nashville has transformed itself in recent years into a technology and healthcare friendly city. A lot of jobs have
entered the area, and so have a lot of educated people. The city is host to Vanderbilt University and is just a thirty minute drive away from Middle Tennessee State University. As such, there are a lot of people pushing up demand for new housing in the area.
Real estate investors have begun to lick their lips at the possibilities that exist for them to make money in Nashville. The hard money lending industry is definitely getting excited about the possibilities that exist their as well. It is pretty clear at this point that both investors and lenders can stand to make a pretty nice profit off of the opportunities that abound from this particular region of the country.
Hard money borrowing may be the best way for any individual to put their stake in the ground and claim their little corner of the real estate market in an area that is certain up and coming.
A hard money loan can look like an extremely attractive option. Hard money loan is a short-term loan extended by individuals and organizations to investors who are interested in short-term real estate. People flock to these types of loans because hard money lender can get them their money in as little as a week, they don’t have strict credit guidelines and they’re generally flexible to work with. While all of this is generally true, there are some things thatmake a hard money loan a great option for some people and a not-so-great option for others. Check out below to find out more.
Reasons that you should consider a hard money loan
A hard money loan could be considered for the following reasons:
No other lending institution will lend you money.
It can be really hard to get money for real estate investment purposes, and traditional lenders are understandably very jittery. They want to be sure that you’ll be able to pay them back at the end of the loan, and if you’re unable to, that will end up as a loss for them.
Your credit score is low.
Having a low credit score can make it virtually impossible for you to get a traditional loan. Hard money loans, on the other hand are based off of the collateral that you will be supplying. In this case, the collateral will be the property that you’re buying and rehabbing.
You need to get money quickly.
Sometimes a real estate deal of a lifetime lands in your lap, or an amazing investment opportunity is suddenly available to you. This is quite common in really high-end, busy markets like San Francisco or New York city where inventory is constantly moving. Being able to obtain cash quickly can make all the difference regarding whether you get to fund your investment.
Reasons That You Should Steer Clear of Hard Money Loans.
There are certain times where getting a hard money loan is not a great choice.
You’re planning on investing in a buyer’s market.
A buyer’s market means that homes are sitting around not getting sold. If you were to buy a property in that area in the hopes of reselling it, your chances would be slim. You’d then be saddled with a loan that you have to repay via refinancing. If you can’t refinance, you could be foreclosed upon.
You don’t have a plan in place in case you have to refinance.
While everyone goes into a real estate deal in the hopes that the property will sell at the end of the loan terms, sometimes it doesn’t. When it doesn’t, you’re going to have to refinance the loan into a more traditional mortgage in order continue to make the payments. If you don’t have refinancing options in place, you could put yourself in a really difficult financial bind. Another fact to consider about refinancing when it comes to hard money loans is that some traditional mortgage lenders require that you need to have owned the property for a certain period of time before they’ll allow you to refinance. If your hard money loan comes due before they approve your application financing, you’ll be on the hook for the loan.
You actually have other loan options.
If you can get another loan for your short-term real estate purchase, you need to do so. Hard money loans carry extremely high interest rates and short loan terms periods, so they should only be used as a last resort by someone who has other options.
At the end of the day there are pros and cons to getting a hard money loan. The pros are that you get your money fast, you don’t need to have good credit and the terms can be flexible since you’re dealing with individuals and organizations instead of traditional banks. On the flip side, hard money loans have high interest rates, making the final balloon payment even more expensive than it would be with a loan that had a low interest rate. They also have short terms, meaning that you’re on the hook for the money if the property doesn’t sell in time.[flexy_breadcrumb]