Fix-and-flip investing is the most common method of generating income in the real estate business, but finding quality financing is not always easy. Fix-and-flip projects are usually avoided by conventional lenders because of the perceived risk. Hard money loans fit in at such times. If you are a broker, knowing the potential of hard money can help you lead your clients to quicker closings, increased flexibility, and ultimately, more successful transactions.
Here, we will explain how hard money functions, its advantages and disadvantages, and how you can leverage it to aid your clients in accelerating their fix-and-flip success.
Hard money loans are short-term, asset-backed loans that are usually utilized by real estate investors to finance fix-and-flip ventures. In contrast to conventional loans, which emphasize the credit history of the borrower, hard money loans are collateralized by the property. Because of this, they are a perfect option for investors who require rapid access to funds or do not qualify for conventional financing.
Key Features of Hard Money Loans:
For brokers, hard money loans are a powerful tool to help clients seize opportunities and close deals quickly.
Hard money loans operate differently from traditional loans. Here’s a step-by-step breakdown of how they work:
The application process for hard money loans is simpler and faster than traditional loans. Lenders focus on the property’s value and potential rather than the borrower’s credit score.
How Brokers Can Help:
Hard money loans usually have shorter maturities and higher interest rates than conventional loans.
Typical Terms:
How Brokers Can Help:
Hard money loans are created to be temporary fixes. Payment usually results from the sale of the property or refinancing into a long-term loan.
How Brokers Can Help:
Hard money loans provide several benefits that make them a useful tool for fix-and-flip investors. Here's how brokers can take advantage of these benefits for their clients:
One of the largest benefits of hard money loans is how quickly they can be done. Conventional loans may take weeks or months to close, but hard money loans can be closed in as little as 7–10 days.
How Brokers Can Help:
Hard money lenders will frequently lend to borrowers who have little or no equity in the property. This makes hard money a great choice for new investors or those who have limited funds available.
How Brokers Can Help:
Hard money lenders are usually more open to negotiations than traditional lenders, providing shorter time frames, lower down payments, and tailored repayment schedules.
How Brokers Can Help:
Hard money loans have numerous advantages, but they come with some disadvantages. Here's what brokers should keep in mind:
Hard money loans usually carry higher interest rates than conventional loans, which can drive up the cost of the project overall.
How Brokers Can Help:
Hard money loans are for a shorter period, and that is, clients must pay off the loan in a hurry—within 6–12 months.
How Brokers Can Help:
Hard money loans make sense in some cases. Here's when brokers should recommend them to clients:
When your client comes across a good opportunity but doesn't have time to wait for a traditional loan, hard money can give them the cash to close the deal before it disappears.
How Brokers Can Help:
For those with little or no equity in the property, hard money can be the financing they require to begin.
How Brokers Can Help:
If your client needs a loan with flexible terms, hard money can be a great option.
How Brokers Can Help:
Hard money loans are a great tool for fix-and-flip investors, but they're not a solution for everyone. Knowing the advantages and disadvantages of hard money will allow you to guide your clients into making intelligent, profitable choices.
At RCN Capital, we know the special needs of real estate investors—and the brokers that serve them. Here's why brokers prefer to work with us:
By partnering with RCN Capital, you can provide your clients with the financing solutions they need to succeed in the competitive world of real estate investing.
Ready to elevate your brokerage game? Connect with us today to discuss our real estate financing solutions and how we can help you grow your business.