Real estate investors face a series of hurdles even after finally locating a great piece of property for future investment. This process can be time-consuming, so it may seem like an extra burden when it is time to find a source of financing for the mortgage. Traditional banks may look down on properties that are currently in bad condition, and this is common even when the investor has a history of turning similar properties around. In addition, the loan requirements from the bank or credit union are often prohibitively high, and this creates a barrier that can be difficult or impossible to overcome. This is why real estate investors should seriously consider the option of taking out a hard money loan instead of trying to meet the expectations of a bank.
Weighing Risks of Financing Options
One of the major risks for real estate investors has to do with the time value of money. There is a certain point when the mortgage has to be issued in order to achieve the desired returns. Properties that are purchased for their investment value will only provide this return if certain conditions are met over time. Bank loans are not designed to accommodate this particular type of investment even if it makes sense and is well-planned. This is where the risk of not getting a prompt loan can outweigh any possible benefits offered by the traditional lending institution. The alternative is the hard money loan, which is a loan offered by a person or entity that is not affiliated with any institution. Carefully evaluate the potential benefits as well as the possible risks in order to determine if this is a good fit for the specific situation.
Potential Benefits, Hard Money Loans
Mitigation of risk is always a top concern for any lender, so it is important to have a solid business plan in place before seeking the hard money loan. This will help the borrower to get the best terms possible. There are many potential benefits to consider when looking at the option of a hard money loan. The requirements of a bank loan are typically much higher than the loan contract offered by a hard money lender, for example. In addition, the terms of a hard money loan are typically more flexible than the options available from a bank. Lenders are often individuals who are interested in circulating their money, but the hard money loan can also come from groups of investors as well.
Terms and Conditions of Hard Money Loans, Summary
Everything is potentially negotiable when dealing with a hard money lender, and this includes interest rates, payment terms and even the aggregate balance limit. However, it is the borrower’s responsibility to fully understand the terms and conditions of any loan. This also includes the potential risks of doing business with the lender. The borrower needs to always exercise what is known as due diligence before accepting a hard money loan. This is simply the process of researching the background of the lender to assess the credibility of the funding source. Check the background of the business entity if applicable, or research any public records that are available on the lender. This information can help borrowers make informed decisions about the risks and benefits of accepting a hard money loan.