Among real estate investors, it is common to use a hard money loan for a fix and flip project. Simply put, hard money loans give you access to tools and resources that traditional lenders just don’t have. Here’s 6 reasons to consider a hard money loan for a fix and flip project.
Fewer Restrictive Rules
When you choose a hard money loan for a fix and flip project, there are fewer restrictive rules that you have to follow. Conventional loans have to abide by government regulations that require a strict underwriting process. Traditional banks and organizations are required to have many restrictive regulations as these loans are pitched for less risky properties, such as residentials. Fix and flip projects are considered to be a riskier investment than purchasing a home that is ready to be lived in, making a hard money loan better suited for your fix and flip project.
Fast Closings and Quick Approvals
Since there are fewer approval standards to receive a hard money loan, it is fairly quick to be approved to purchase a home. Banks can take a month or more to approve you for a traditional loan. A hard money loan gets cash in your hands within a few days, making it one of the best reasons to get one for a fix and flip project. If you want cash in your hand fast to purchase a property, consider using a hard money loan instead of a traditional loan.
No Pre-Payment Penalty
Typically, a traditional loan will have a pre-payment penalty if you pay back your loan earlier than the term. When using a hard money loan, you do not have to worry about being hit with pre-payment penalties from your lender. Hard money lenders allow you to pay back your loan earlier than your full loan term without being at risk for penalties. If they do have pre-payment penalties, they will usually expire within 6-12 months, a much shorter timeframe than most traditional loans. Hard money loans give you the flexibility to pay back your lender before term dates to get you onto the next project faster.
Hard money loans give you the access to lending if your credentials are not approvable for a traditional loan. Hard money lenders do not look at debt-to-income ratios as much as traditional lenders, they will instead be looking for loan-to-value ratio. They are more interested in the value of the property after refurbishment than your credit score or total debt. A credit score that might be considered too low for a traditional loan might qualify for a hard money loan based on other factors.
Off Market Properties
One of the many reasons to get a hard money loan for a fix and flip project over other forms of lending is that it can applied to off market properties. Unlike traditional lenders, hard money lenders will allow you to use your loan for off market properties that are generally sold by wholesalers. These properties are not listed publicly, so it is important to know the right people when making this kind of deal. Your hard cash lender might have connections to wholesalers.
Using a hard money lender gives you access to new connections you would not have had when using a traditional lender. Hard money lenders can steer you in the right direction for agents, reputable contractors, stagers, and comparable properties. The partnership that using a hard money lender offers you is more valuable than your relationship with a traditional money lender. Leverage yourself in the market with the connections through your hard money lender.
RCN Capital offers short-term and long-term financing options for real estate investors. Whether you are looking to fix & flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs. Connect with us today to discuss your next real estate investment.