Understanding Hard Money Loans for Real Estate
If you’re like most investors, you don’t have enough capital to purchase properties outright the moment you see them. Instead, you likely have to leverage hard money loans for real estate in an effort to quickly access the capital and make the purchase. But, despite the rapid growth in the hard money sector, many investors are still unsure about how these loans really work, and what they can mean for someone interested in adding properties to their portfolio despite the stringent lending policies of large corporate banks.
Secured by the property itself, hard money loans generally cover 70% of the property’s value, establishing a 30% margin to ensure the prevention of loss in the event of foreclosure. Don’t let this give you the wrong idea, however, as these organizations have little to no interest in acquiring a property that they are financing. The goal, like any other lender, is to simply profit from the agreed upon interest rate, while helping the industry move forward through the purchase of distressed properties.
The Benefits vs. The Costs
Like anything else, hard money loans have great benefits with a couple of downsides. For example, the application and approval processes for these loans are quick, giving the buyer the ability to move quickly on found opportunities. However, these loans also tend to have higher interest rates than their large bank counterparts. Some careful research into the interest rates being charged will help you to better determine which firms are offering competitive rates and which are not.
Investors everywhere are beginning to see the benefits of using hard money loans for real estate purchases. While potentially a bit more expensive in the near term, the ability to gain quick approvals and avoid the personal credit scrutiny often associated with large bank alternatives far outweighs the costs.