May 05, 2016 - 11:53
If you ever happen to run into a property that could use some upgrades/remodeling and can turn it quickly at huge profits, then you should get started on it right away! The only problem is that you might not have all the money or be able to get a standard mortgage to purchase the home and the remodeling costs. But that is OK, this is where a Hard Money Lender can come in handy. So what exactly is a hard money lender?
Hard money lenders are typically private individuals or small groups that lend money based on the property you are buying, and not on your credit score like most lenders. You can receive funding within a few days (7-14 days) rather than 30 days+, and you can get a loan on any home that will make profits after the repairs. Also, instead of dealing with a processing team like most lenders, you actually just deal directly with the lender so you will get approved much more quickly. Usually a loan does not exceed 70% of the after-repaired-value, which is calculated by an appraiser and consideration of repairs. So having a down payment can help in the process as well, lenders want to ensure that you have enough resources to finish the repairs and cover the costs of the loan plus any surprises
The typical hard money lender will charge somewhere right around the usury rate. In Texas it is 18% annual, so most lenders will charge 5% origination and 13% interest on a 1 year note. So the rate can range from 10% interest only to 18% interest only annual interest rate payable monthly in most cases.
Developers and investors have been using hard money lenders to make the initial purchase, short term flips, and rehabs to get in and out fast while making a big profit. On the other hand, if you are thinking of a long-term investment then it might not be the best decision to go with a hard money lender. But if you know you can buy a property and turn it quickly at a huge profit, and you can’t get a standard mortgage, it would be the ideal way to go.