Whether you’re investing in a property to flip or a landlord looking to invest in rental property and have done your research, you’ve likely read that a hard money loan is your best bet when seeking financial assistance. Maybe you’ve tried getting a loan from a bank for the project and have been rejected for one reason or another, and are curious about hard money loans. This is because, with these types of investments, conventional loans and banks that provide them are under strict regulations that make it impossible to make a deal within your time frame. With hard money lenders, however, the situation is different. Let’s go over the pros and cons of hard money lending to show you what we mean.
Pros
- Quick Approval; in situations like those mentioned before, borrowers will typically be hard-pressed to get a loan within a certain amount of time to finish their projects. Traditional lenders have difficulty adhering to these deadlines due to the strict regulations, loads of paperwork required, and lengthy processing times. When going through hard money lenders, you can typically expect to close a deal so much more quickly – some within as little as 24 hours – and once you’ve developed a relationship with us, the process moves even more quickly.
- Collateral Options; rather than investing in you and your individual credit history, hard money lenders are investing in the value of the property or properties. Because of this, we are typically willing to accept different types of collateral as long as the borrower can present collateral which is profitable enough to secure the loan. This entails bringing your plans for the property with you to present to us, as well as the value of the land and property as it currently stands, giving us a better understanding of the project and what we’re working with.
- Flexible; because hard money lenders don’t use a standardized underwriting process, we are able to evaluate each deal individually. Depending on your situation, you have the freedom to negotiate certain aspects of the deal to fit your needs, making us much easier to work with than traditional lenders.
Cons
- Short Term; hard money loans are private loans used primarily for the renovation, flipping, or building of property, so they are typically available only as a short-term means of financing. Our loans typically range from 6 months to 2 years, making the monthly payments higher, along with…
- Higher Interest Rates; hard money loans have higher interest rates than traditional loans because we take on more risk with the nature of the loan – focusing primarily on the property value rather than the borrower’s credit. Because of this, you need to manage your investments very carefully when choosing a hard money loan to avoid default or loss of property.