Purchasing real estate is an expensive endeavor. As such, not many people venture into this form of investing since they are wondering where they can get enough capital for their first house. If you have been under the impression that the bank is your only solution, you are mistaken. Another option you can consider is private lending in the form of a hard money loan. Hard money lenders specialize in helping investors by fiscally facilitating the purchase of real estate properties. If this sounds appealing to you, but you have no idea what to expect, here is a brief guide on hard money loans for anyone that is looking to invest in real estate.
Are hard money loans solely beneficial for buying a property for the long term?
Some people have the mistaken belief that hard money lenders also assist individuals that are purchasing real estate that they will hold on to for the long term, but this is untrue. The reality is that hard money lenders will work with developers, flippers, and other individuals that require flexible financing for their real estate venture. Usually, these individuals may have difficulties with sourcing a loan from the bank, or you may need the money faster than a bank can dispense a loan. Overall, you can apply for a hard money loan when you are looking to buy an undeveloped lot of land, a residential property, a commercial property, and so on.
What does applying for a hard money loan entail?
One of the leading advantages of choosing to work with a hard money lender over going to the bank is that getting a hard money loan does not require half as much paperwork as a bank loan does. Hence, not only is the process stress-free, but it is quick, too. Nonetheless, there are a few documents that are pertinent if you want to be approved for a hard money loan.
To begin with, you need to have a document stating either the current value of the property you want to invest in or its projected value. Secondly, you need to have a document outlining how you intend on paying the hard money loan. Lastly, you should provide the hard money lender with your tax returns, bank statements, and any other documents that can illuminate your previous experience in real estate investing.
Are hard money loans capped?
The third concern that some intervals have regarding hard money loans is that they come with a low limit, but this is incorrect. Instead, there are two main ways that loan amounts are determined. The first is the LTV (loan to value), which is the value of your investment property divided by the value of the property. The second is the ARV (after repair value), which refers to the financial worth of the property once you have undertaken repairs and renovations.
Contact a local hard money lender to learn more.
When I started my own company, I knew that I needed a little business capital and fast. In an effort to raise money, I worked with various lenders to discuss loans, financing, and special terms. Unfortunately, I quickly discovered that not every loan was created equally. Some loans had almost predatory terms like high interest rates and penalties, while others were completely fair. Fortunately, a business consultant of mine taught me about loans and financing, so that I could make better choices in the future. The information on this blog saved my business, and I know that it can help yours too.