Secured Borrowing: Analyzing Hard Money Real Estate Loans
Hard money real estate loans fill a critical void in the industry, as they are offering up capital during a time when larger banking institutions refuse to let go of their stores of liquid funds. For those who are on the borrowing side of the equation, the streamlined, incredibly convenient application and disbursement processes are unmatched in real estate finance. Investors who currently have capital are able to leverage it by loaning it out to real estate developers interested in either flipping properties or simply retaining formerly distressed locations as a perpetual income opportunity. But, how are these firms able to lend so much capital so quickly? The secret is in the built-in security –
Speculating in real estate can be a tricky prospect, as the value of locations can fluctuate quickly. This is why profitable real estate investors place a premium on being able to quickly secure funding. They can snap up a location, make some minor alterations, and immediately begin turning a profit. The lenders are able to offer this convenience without great risk, because safeguards are built into the loan design.
Hard money loans are secured by the value of the property. With the location acting as collateral, the loan will usually cover approximately 70% of the appraised value, ensuring that the lender is protected in the event of a borrower default. It should be noted, however, that these lenders have little to no interest in repossessing a location, as it becomes a no-profit situation quickly when this occurs. Instead, they would rather offer the funding, accept their interest rate profit, and move onto the next transaction.
Hard money real estate loans are changing the way people view real estate. The secured transactions allow “high-risk” borrowers to purchase properties without transferring said risk onto the lenders.