Is It Wise To Get Hard Money Loans

A lot of the “real estate investment guru’s. In their view, the best real estate investment is one where the direct risk isn’t on you. In my opinion, if you don’t think a real estate investment is good enough to use your money, you probably better not ask others to invest their money. But that’s a subject for another day, this article is focused on hard money.

Privately funded, high interest, high fee real estate loans are known as hard money. These loans aren’t called hard because they’re diffucult to get, what they are is hard to pay off. Hard money loans are usually really expensive. They usually have an upfront origination fee of 3 to 5 percent, and double digit interest rates.

The main difference between hard money loans and traditional mortgage loans is the criteria used to determine finance worthiness. The focus on traditional mortgage loans is the borrower. Traditional loans base their risk on the borrowers credit, debt to income ratio, and job history. With hard money loans, the main focus is on the value of the property. If the property is worth more than the amount to be borrowed, hard money lenders will likely provide the funds. If the borrower defaults, the hard money lender quickly forecloses and owns a property with substantially more equity than it was paid for.

There is a place for hard money loans, and they can be a valuable means for making real estate deals happen. In order for many real estate deals to happen, the invester must have the financing within a few days. They must come up with money fast. A good hard money lender in Virginia can fund money within 48 hours. If it’s a solid investment, despite the high financing cost the buyer can still net a substantial profit. The potential profit is more important than purchase costs.

If an investor borrowed $100,000 from a hard money lender at 20% interest, and sold it three months later for $140,000. The upfront fee was $3,000, or 3 points. Their profit would have been three times greater than the hard money lenders..

Real Estate investors can benefit from hard money loans, but need to be careful with the way they use them as the costs are very high.