How to Finance Real Estate With Hard Money Loans
Finding the right loan to finance real estate investments doesn’t have to be difficult. Sure it can be difficult for house-flippers to find traditional financing from banks due to their strict regulations and rules and borrowing from a bank can be downright impossible. However, hard money lenders are your best bet when looking for loans for short-term investments.
When it comes to house-flipping, luxury real estate can be a great investment. Luxury-home flips can be profitable but they can also be risky.
“With one flip, you could make the same amount that you could with 10 deals of a lower-end property,” says Daren Blomquist, senior vice president of Attom Data Solutions. “But you’re putting many more eggs in one basket and counting on that one property to deliver.”
When using a hard money loan to finance real estate investments, luxury real estate is a path to consider. Luxury real estate can add diversity to your portfolio while creating a sustainable source of passive income. If you’re a high net worth investor, you may be able to expand your horizons beyond the basic fix-and-flip by moving into the luxury real estate market. Investing in luxury real estate can be extremely costly so deciding how you will finance the investment is very important. If you find a bargain on luxury property and believe you can sell it relatively quickly, a hard money loan can help.
Hard money-lenders provide short-term financing. These lenders generally have more flexible terms than traditional lenders. According to SmartAsset, hard money loans can be a great way for house flippers to get a loan that works for them:
“Hard money lenders make loans for flippers and real estate developers on slightly different terms than banks. These loans are designed for people who don’t necessarily have great credit but need money to complete their renovations. Hard money loans are short-term loans that typically need to be repaid within a year or so.”
The Wall Street Journal offers these tips for real estate investors:
- The numbers are critical. Make sure your budget is realistic and your contractor has a record of finishing on time. Luxury flips take more time than lower-cost ones—an average of 208 days, compared with 181 days for all flips, according to Attom Data. A delay of just days can bring additional costs that will eat into profits, so make sure your budget includes reserves for contingencies, such as delays in getting construction permits.
- Details count. Luxury buyers are demanding when it comes to high-end finishes. Hire a good designer and pay attention to the details when renovating a property. Factor in the cost of luxury upgrades a buyer will expect.
- Beware of defaulting. Like banks, hard-money lenders and crowdfunders secure their loans with a mortgage on the property you’re flipping. If you default, they can foreclose on that mortgage. They may also report your failure to pay to the credit bureaus, which can affect your credit score.
Developers, house flippers and long term investors are the blood of the hard money business. These type of investors main concern is getting the deal and making money from it. Most Real estate investors don’t really show much income on their tax returns but they do make enough money to make the payments, so they cannot qualify for a loan with a conventional lender. Hard money loans will help finance real estate investments. Hard Money will provide them the money they need to purchase/refinance their real estate within days without looking at their tax returns or credit.