You’re starting in real estate investing and working through how a loan can work through a traditional institution for your little house flipping project is too much. But the project is going to cost too much to pay it all out-of-pocket. Utilizing a hard money loan can hit the sweet spot. Not to mention give you great, personal benefits for your next project.
What is a hard money loan?
A hard money loan is a short-term loan that skips your local bank or financial institution. While it can feel like it’s skipping a few steps to get the money into your hands, the terms of this hard money loan can be much more restrictive.
Typically, a hard money loan is generated from individuals or investors and is intended to be paid back in a short amount of time. This gives you the cash you need to get started on your next real estate project without the hoops and waiting periods of traditional financial institutions.
Hard money loans typically have terms or 6-18 months while traditional loans are paid over 30 years. So while the turn-around time is much shorter, the projects often take less time as well and you’ll have the cash to repay the loan. These types of loans are most common for flip-and-fix projects and give real estate investors great flexibility to use the cash as they need.
Hard money loan vs. traditional loan
Hard money loans can appear in your bank account and at your disposal in a matter of days rather than the much longer weeks that it takes a traditional loan.
Simple approval
Investors that deal in hard money loans don’t look at credit scores or collateral when determining whether to disburse the money. Instead, they look at the value of the property and what it’s after repair value will be. This determines how they release the money which can be a great advantage to real estate investors who need capital to get started on repairs.
Strong offer
For choice properties, there may be several competing offers that will sound tempting to sellers. But real estate investors with hard money loans have great negotiating power and their offers are seen as being very strong. Hard money investors are seen as reliable and unlike banks or lending institutions won’t pull funding for unknown reasons.
More deals, more money
Using cash can give you the flexibility to participate in more deals without needing to go through the hoops of financing every time. Finding great deals at all-cash auctions can allow hard money investors to swoop up more properties at lower prices than traditional loans.
The flip-side though is that your cash may be tied up in one property and can’t be accessed to pick up new investment.
Flexibility and availability
When using a traditional loan application and going through banks or lending institutions, the rules are very rigid and inflexible. Breaking a rule might lead to the bank pulling your funding mid-project or dropping out entirely.
Working with a hard money investor gives you the flexibility to set the pace for your project and partners. Hard money investors get personal and involved and are much more willing to work through an issue with real estate investors rather than drop out without warning.
Partnership
When you get a hard money loan, you’re working with an individual and not a big bank or business. This person enters into a partnership with you for your property. They can offer advice, guidance, and encouragement as you set out on your new venture.
Rather than working with an impersonal bank or lending institution, you now have a partner to bounce ideas off of, work through tough situations, and take pride in the result. If you find yourself in a pinch, you can go to them and work through an issue.
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Takeaway
Working with a hard money loan instead of a traditional loan can leave you with great benefits for your project.
The money from your hard money loan will most likely be in your pocket within days instead of weeks. You’ll have the flexibility to pick up properties for a lower cost or at an all-cash auction. When working with a hard money loan investor you don’t get an impersonal bank or financial institution, you’ve got a partner and advisor.
Utilizing a hard money loan is great for real estate investors who are looking to do a flip and fix projects and is willing to repay the loan over a shorter amount of time. You get a partner, cash, and a great start to your project with a hard money loan.
Bridge the gap with your rental properties by checking out our Bridge Loan product
Global Integrity Finance is a nationwide, direct, hard money lender. They provide many different types of real estate investment products for brokers as well as borrowers. Located in McKinney, TX, they’ve been serving the community for 25+ years and now serves our entire nation. They truly have a comprehensive understanding of the mortgage industry unlike any other lender.
