Real estate investors are always on the lookout for financing options that can help them secure the funding they need to purchase properties and grow their portfolio. One option that has become increasingly popular in recent years is hard money loans. In this guide to hard money loans, we'll take a closer look at what these loans are, how they work, and why they can be a key to real estate success.
What Are Hard Money Loans?
Hard money loans are a type of short-term financing that is typically used by real estate investors to purchase and renovate properties. Unlike traditional bank loans, which are based on the borrower's creditworthiness and financial history, hard money loans are secured by the property itself.
Because hard money loans are secured by the property, they are considered less risky by the lender than other types of loans. As a result, they can be easier to qualify for and can be processed much more quickly than traditional loans. Hard money loans typically have a higher interest rate than traditional bank loans, but they are often more flexible and can be customized to meet the needs of the borrower.
How Do Hard Money Loans Work?
Hard money loans are typically issued by private lenders or groups of investors who are looking to earn a return on their investment. The loan is secured by the property itself, which means that the lender has a legal claim on the property if the borrower defaults on the loan.
The terms of hard money loans can vary widely depending on the lender and the borrower's needs. Generally, the loan will have a term of anywhere from six months to three years, and the interest rate can range from 6% to 15%, depending on the use case of the loan. The lender will typically require the borrower to make monthly payments of interest, and in most cases, principal as well. Hard money loans also come in an interest-only variety, where the principal amount will only become due at the end of the loan period.
Hard money loans are typically used for short-term real estate investments, such as fix-and-flip projects, where the investor plans to purchase a property, renovate it, and then sell it for a profit in a short amount of time. Because the loan is based on the property's value, the borrower can often secure financing even if they have a less than stellar credit history.
Why Are Hard Money Loans a Key to Real Estate Success?
There are several reasons why hard money loans can be a key to real estate success:
- Speed: Hard money loans can be processed much more quickly than traditional bank loans, which can take weeks or even months to be approved. This can be particularly important in a competitive real estate market where properties are selling quickly.
- Flexibility: Because hard money loans are issued by private lenders, they can be customized to meet the needs of the borrower. This can include flexible repayment terms, interest-only payments, and other features that are not typically available with traditional bank loans.
- Access to financing: Hard money loans can provide real estate investors with access to financing that might not be available through traditional bank loans. This can be particularly important for investors who have poor credit or a history of bankruptcy.
- Opportunity for profit: Hard money loans can provide real estate investors with the funding they need to purchase properties, renovate them, and then sell them for a profit. This can be an excellent way to build wealth and grow a real estate portfolio.
- Less stringent process: Because hard money loans are based on the value of the property, there is typically less paperwork involved in the application process than there is with traditional bank loans. This can save time and reduce stress for borrowers.
The easiest way to save on your next investment is to obtain financing from a real estate lender that can get you the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. If you are an investor looking to finance an investment property, RCN Capital has competitive loan options available.Connect with us todayto discuss your next real estate investment.