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Important California Hard Money Considerations


California hard money lenders are increasing in popularity, as investors and homeowners alike are turning to these organizations as a means of financing home repairs, avoiding foreclosure, or simply pursuing properties that may provide an opportunity for profit.  These loans are only temporary, as they can help give the owners or investors the time necessary to arrange for new financing or simply avoid losing the property to the bank.  Interest rates are higher, but in the end, anyone can turn an investment property into a profit creator by simply using California hard money loans, making the necessary repairs to a piece of property, and then renting it at a substantial increase in price.

Expected Interest Rates

Because regulations on hard money lenders in California are much different than those placed on banks, interest rates can be all over the board.  Some lenders may charge a borrower 3%, while others will charge 6%.  Everything depends on the borrower’s credit history, the property they are purchasing, and of course, the default risk that the lender assesses in your current situation.  Other fees may apply, such as establishing a permanent mortgage with another institution once the property is ready for rental, but these fees are to be expected.

Minimizing ‘Out of Pocket’ Costs

In investing, there is always risk!  The hard money lender is risking their capital in you.  You are risking your capital in the property.  Heck, I’m risking my time while writing this article!  Risk means everything with hard money loans, so don’t expect to get through your real estate investment without risking something.  But, let’s consider, for a moment, the profit potential that exists when purchasing a location in desperate need of repair.  Simply having enough to purchase the property simply won’t allow you to make the necessary improvements.  And, because you can only expect to receive a loan of 65-70% of the property’s value, coming up with the rest can be difficult, right?  Well, that’s true in a standard real estate market – a market that we, currently, are not in!

Across the country, properties can be found at a 30, 40, or even 50% discount!  These properties are often foreclosures that the bank is simply trying to unload to investors like you.  If a property is appraised for $100,000, but the bank is only asking $55,000, you have potential.  Now, let’s assume that you contact a local hard money lender and they offer you a $70,000 loan for the property.  You now have $25,000 for repairs.  These figures are designed to make the math involved easy, but you get the idea…

California hard money loans are an essential ingredient in the current real estate market.  Investors can take advantage of foreclosures, and lenders can generate a nice return on letting these investors use their capital.  All in all, these loans provide an effective means of financing.  Once the repairs are concluded, and the property’s value is increased, it can be reappraised, new financing can be found through a bank, and the hard money loan can be repaid in full!

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