Fix-and-flip investing is a great way to make money in real estate. However, it can be somewhat difficult to get reliable financing for these projects. Traditional lenders are often hesitant to lend money for fix-and-flips because they are considered to be riskier than other types of investments. This is where the power of hard money comes in.
Hard money lenders are willing to lend money for fix-and-flips even if the borrower has little or no equity in the property. They typically charge higher interest rates than traditional lenders, but they can also close loans more quickly. This makes hard money an incredibly valuable tool for fix-and-flip investors. By using the power of hard money, you can accelerate your profits by closing deals faster and getting access to the capital you need to complete your projects.
How Hard Money Works
Hard money lenders typically offer short-term loans, with terms of 6 months to 1 year. They also charge higher interest rates than traditional lenders, typically ranging from 10% to 15%, due to the short-term nature of the loan. However, these loans can also close more quickly, often within 7 to 10 days.
Hard money lenders typically require borrowers to place a down payment of 20% to 30% of the home’s purchase price. Most lenders also require borrowers to have a good credit score or a history of successful real estate investing.
The Benefits of Using Hard Money
There are several benefits to using hard money for fix-and-flips:
- Faster closings: The power of hard money means lenders can close loans more quickly than traditional lenders. This is because they don’t have to go through the same stringent underwriting process.
- Access to capital: Hard money lenders are often willing to lend money to borrowers who have little or no equity in the property. This can be a great option for investors who are just starting out or who do not have a lot of cash on hand.
- Flexible terms: Hard money lenders are often willing to offer more flexible terms than traditional lenders. This can include things like shorter loan terms, repayment plans, and balloon payments.
The Drawbacks of Using Hard Money
There are also some drawbacks to using hard money to consider:
- Higher interest rates: Hard money lenders typically charge higher interest rates than traditional lenders. This can increase the cost of your fix-and-flip project.
- Shorter loan terms: Hard money loans typically have shorter loan terms than traditional loans. This means that you will need to repay the loan more quickly.
When to Use Hard Money
Hard money is a good option for fix-and-flip investors in the following situations:
- You need to close a deal quickly: If you find a great deal on a property but you need to close quickly, hard money can be a good option.
- You have no or little equity in the property: If you have no or little equity in the property, hard money can be a good way to get financing.
- You need a flexible loan: If you need a flexible loan with shorter terms or lower down payments, hard money can be a good option.
Hard money can be a powerful tool for fix-and-flip investors. By using the power of hard money to your advantage, you can accelerate your profits by closing deals faster and getting access to the capital you need to complete your projects. However, it is important to weigh the benefits and drawbacks of hard money before you decide whether or not to use it.
If you are considering using hard money for your next fix-and-flip project, be sure to do your research and compare different lenders. You should also make sure that you understand the terms of the loan before you sign anything. With careful planning and execution, hard money can be a great way to accelerate your fix-and-flip success.
The easiest way to save on a real estate investment is to find a trusted 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. RCN Capital also has flexible and competitive loan options available. Are you looking to purchase or refinance an investment property? Connect with us today.