Hard money is typically used by investors to fund real estate deals short-term. Commonly, hard money is used to finance fix and flips or for purchasing rental properties until a more long-term financing method is obtained. It can be more expensive, but it can be a good option for investors looking into rental properties. Read on below to learn about hard money loans and their use as a financing method, as well as about certain lenders.
So what are hard money loans? Hard money is a kind of short-term funding used for financing properties for short lengths of time, like six months or a year. When it comes to hard money lenders, their terms are quite different as compared to those with traditional bank loans. One important thing to note is that you will be charged a high interest rate when working with hard money lenders. These rates may be from 12 to 16 percent. These lenders may additionally charge points for their money. Points are a certain percentage of the amount of the loan you are receiving, and they may drive costs up quickly.
Why do investors use hard money loans when it comes to financing investment property? There is a specific advantage with hard money. A hard money lender may lend you the entire amount needed to complete a deal. That is a good benefit for investors. Typically, a hard money lender will base the loan amount on the ARV, or after repair value. The lender may lend you 65 to 70 percent the ARV. Remember, the ARV isn’t the purchase price. The ARV is how much the home will end up being worth after it is fixed up.
You may be wondering where to find lenders that provide hard money loans if you want to secure this type of financing. There are actually a good bit of hard money lenders out there, you just have to look. Some of them may only provide these loans in certain states, while some can lend nationwide. A good way to begin your search is to get online and use a search engine to locate one in your state.
This type of loan is just one way to finance a rental property. Consider your own situation if you are considering getting one to determine if it is the right method for you. Do your research on different lenders as well to see what they have to offer. Proper research is essential when looking for financing.