Savvy real estate investors often consider a full range of opportunities in order to maximize their return on their investments. In some cases, the best real estate opportunities are found in buying an income-producing property that is in great condition and simply pulling cash flow from it on a monthly basis. Bank loans are a great way to finance this type of real estate investment because they usually have a long term, a low interest rate and an affordable monthly payment. However, there are also other types of real estate investments that could be just as profitable or even more profitable in some cases. A major hurdle that needs to be jumped for many of these alternative investment options relates to financing. What can you do when you need to finance a real estate project that does not qualify for bank financing? The answer may be found in hard money.
How Banks Make Real Estate Loans
You may be fairly familiar with the real estate loan process from banks through your previous loan applications. However, you may not understand why the specific loan process is in place or why so much documentation is required. When your bank loan closes, the bank usually initially funds the loan with its own money. However, most banks do not retain real estate loans. Instead, they sell them in pools. In order to sell their loans, the loans must all meet very specific criteria. For example, the applicants must have a minimum credit score and a maximum debt-to-income ratio. Essentially, banks set their underwriting requirements so that the loans can be sold. They do not have any flexibility to think outside the box even if a loan request makes excellent financial sense. If one small factor does not fall into place with a loan application, the loan request will typically be turned down. Hard money loans, however, have a completely different process.
What to Expect From Hard Money Loans
The primary differences between hard money and bank loans lies in where the money is actually coming from. Private investors or private companies make hard money loans with their own funds. Essentially, they are looking at these loans as an investment of their own by drawing interest charges off of your monthly payments. They have no intention of selling the loans as banks do. In most cases, private money or hard money lenders are concerned mostly about the property value. They want to ensure that sufficient value is in the property to cover the loan in the event that you default. This mentality results in hard money lenders being able to approve loan applications that banks may not consider. It also usually results in short loan terms, balloon payments and higher interest rates.
When to Use Hard Money
You may be wondering what types of projects hard money loans are used for. While hard money lenders may entertain a wide range of scenarios because of their flexibility and lack of underwriting constraints, there are a few specific types of scenarios that are more commonly used. For example, renovation projects are commonly financed with hard money. The borrower may plan to sell the property after renovations are completed for a large profit, so a short-term, interest-only loan with a fast and easy underwriting process may be ideal. Because hard money loans have a very short processing time, they may be used when a fast closing is necessary as well.
Many people compare hard money loans against bank loans, and they view hard money loans negatively because of the specific loan terms offered by hard money lenders. However, bank loans are only available for very specific types of scenarios, and their loan terms may therefore not be suitable for the specific project that you are working on. It is not feasible to compare hard money loan terms against loan terms that cannot even be considered for the scenario. With this in mind, now may be a great time to reach out to a few reputable hard money lenders to explore your financing options.
What differentiates Syracuse hard money lenders from traditional lenders?
The biggest difference between traditional lenders and hard money lenders is the fact hard money lenders are asset centric lenders. They look at on the collateral associated with the by the person requesting the funds. But, traditional banks are fixated on credit and how much money the real estate investor has. It is critical to remember hard money loans are not good for the long term. The purpose of a hard money loan is to be a bridge loan that gets you the asset you’re trying to buy. Hard money lenders focus on short term loans that generate a significant ROI. If you fail to pay the hard money lender back, then the lender can foreclose on your property in order to repay his/her loan.
why is a hard money loan a bad idea?
There’s plenty of reasons reasons why a hard money loan is a bad idea. For example, hard money lenders often charge higher interest rates. This is because of the fact hard money lenders think they’re taking substantial risks by lending on an investment property – and wish to be compensated accordingly. High interest rates make hard money loans unattractive for some types of deals. Moreover, hard money lenders have shorter terms than traditional lenders – that also makes them unattractive. Traditional lender provide 30 year terms but private money lenders offer only 1-3 year loan terms.
Hard money lenders can finance your deals fast
Hard money lenders assist a very specific group of people, i.e. property investors. Hard money lending is a type of bridge term financing, which is secured by real estate. Specifically, the people who use hard money loans are generally real estate investors – typically, people who are being denied a conventional loan due to stringent guidelines.
Hard money lenders exist since they’re fast, and provide loans with little to no headaches. Hard money lenders have a relatively simple application system. They anticipate collateral and do not look at your credit rating. They focus on your experience, as opposed to your credit worthiness. If you’ve got a checkered financial history, it’ll be easier to obtain financing with a hard money loan rather than a conventional loan that’s granted based on your credit report. Below are situations where hard money lenders fill a void that conventional lenders do not touch:
Syracuse Hard money loans can be used for fix and flip real estate investors
Most traditional lenders won’t offer you a loan to get a fix and flip job. If the home is in poor condition, or there’s some other abnormality with the home, then a conventional lender won’t give you funding. Additionally, most fix and flip prospective deals”go fast.” The seller is very motivated to sell the property, and will accept the first deal. Traditional lenders take forever, so by the time the loan is approved – you’ve already lost the property because someone paid cash for it. If you have a hard money lender on your side who can close a loan in 5-10 days, you can find the fix and flip property.
Hard money loans a type of bridge financing
From time to time, your job goes over-budget and as a result you need additional funds. Some conventional lenders will deny, because the job isn’t finished. While this can be catastrophic, a hard money lender might be willing to lend you the money. Hard money lenders are happy to provide money to bridge the gap in funding, and can work with you to fill that void.
Hard Money Loans Can Be Used For Commercial Real Estate Investments
Many real estate investors who need a commercial property can get hard money loans from a commercial hard money lender. At Delancey Street, we finance commercial properties throughout the USA, with rates as low as 7 percent, with terms ranging from 6-24 months. We offer amazing client service, with no hidden fees, or bait and switch tactics. We don’t charge early payment penalties, and there are no income requirements. There are no minimum credit score requirement, and we have minimal paperwork. We offer commercial, hard money loans for multifamily properties, office buildings, retail locations, industrial buildings, and much more. We have assisted with a wide spectrum of commercial real estate investors secure funding for a variety of commercial properties. Delancey Street works with real estate agents and hard money brokers that are trying to help their clients get a private money loan. We have financed countless commercial loans and can work with all types of borrowers. Underwriting a commercial hard money loan requires a whole lot of effort and takes a motivated team.