Hard money loans are quick, temporary and backed by the value of the property they are taken for. This lets you have access to some quick cash that you can use to rehabilitate the property and put it on the market fast. When doing so, however, there are some key points that you should be aware of each step of the way:
- Judge Your Costs Effectively. Make sure that you are aware just how much the rehabilitation will cost and that you have a reasonable time frame in which your investment and renovation can turn out to be profitable.
- Stay Within Budget. This is not always possible, but, having performed step #1 correctly, you should be able to remain within the budget you have set for yourself and avoid taking unnecessary risks with your personal funds.
- Decide Whether You Are Selling Or Renting. If you are planning to rent the finished home out, remaining the proprietor after rehabilitation is finished, you need to be prepared to refinance your hard money loan as soon as you enter the market. Once construction and renovation is done, you need to work on minimizing your interest rate.
- Work With A Reputable Lender. Hard money loans can often come from individuals rather than institutions, and this leaves a lot of grey space for disingenuous lenders to pop up through. There are lenders out there whose only goal is to take your home from you, so be sure you are working with a scrupulous professional.
- Do Not Expect A Full-Value Loan. Most hard money loans will lend out a healthy fraction of the property value. Getting anywhere between 50-75% of the property’s value in cash is the norm in many areas and environments, but receiving a hard money loan close to 100% is highly unlikely, if not impossible.