You real estate investor certainly need to know how to have money in your pocket so you can do your business. Right? Then knowing what hard money lender is can be the solution to those needs.
What do you mean?
You know that there are many ways to get a loan nowadays, but most of them are bureaucratic and require as collateral the credit score of those who want to lend the money.
In this way, it is often infeasible to get money quickly and practically in order to make investments that demand dynamism.
For example, if you are a house flipper and buy a house to renovate and then resell it, you may not have prepared it very well and become decapitalized after acquiring the property.
Then, in order to get money fast and give as collateral the recently bought house, you get the necessary value to reform the property through a hard money lender.
This way, you don’t get the property stopped, and you can proceed with the flip. As this is a relatively fast business, you will soon be able to sell the house and pay off your loan.
Want to know more about hard money lending? Come with me!
What is a hard money lender and what is his profile
Basically, when we need money for any need we turn to the banks. This has been happening for more than 500 years around the world. But there are other ways of getting money in the market that can be much more advantageous than asking a bank. Yes, I am referring to hard money lenders. After all, do you know what it is?
In fact, this creditor 99% of the time is not involved with any kind of bank. They are individuals or companies that see lending money as an excellent business.
Despite its positive and negative points, hard money lending is very attractive for certain profiles of investors or people involved with the real estate market.
This is because getting a loan in this way is much simpler and requires no collateral other than property.
For this reason, many homeowners who have mortgage debts turn to hard money lenders to get money to pay the mortgage and not lose their property.
Thus, this type of loan is often considered a “last option” within the market, since its interest rates are usually higher.
On the other hand, the amount received from the creditor is determined by the percentage of the value of the property that is used as collateral. In other words, the value obtained by the debtor is around 50 to 70% of the value of the property. The technical term for this is LTV – loan to value.
Therefore, what leads an investor who needs money to intelligently resort to a hard money lender is to recognize the pros and cons of this type of loan.
So, let’s get to know them in detail? Come to the next paragraph and see!
Practical example of the conscious use of hard money lender services
Now that you know well what a hard money lender is, I will give you an example so that you understand a situation in which it can be very useful.
Let’s imagine a specific situation: you are a wholesaler and you find an incredible business opportunity by buying a house extremely below market value. You know you can resell it easily. But it happens that you don’t have money to buy at that moment.
After all, this is an opportunity only for cash buyers, since the seller needs cash in hand as soon as possible.
What to do then?
Well, you can resort to hard money lending that will bring you fast money to enjoy this bargain. In a matter of months you will find a buyer for this property and you will be able to pay the loan and still make a good profit. All this sounds very good, doesn’t it?
In fact, hard money lending can be an extremely advantageous business. But there are also the negative points of this type of lending.
So take a look at the pros and cons of hard money lending.
Advantages of Hard Money
Among the strongest positive points is the speed at which approval is given. Surely hard money lending surpasses in time of approval the loans made with banks to, for example, mortgage your house and buy a property.
This is possible since a hard money lender does not focus on the financial situation of those who want the money, but rather on the guarantee that he can give it. That is, the most important thing is not the credit score, but the property that will be the payment confirmation.
Thus, the lender does not waste his time checking income or whether whoever wants to make the loan is sunk in debt.
The facility will be even easier if the creditor is someone known to you and has your references in advance.
Besides, the hard money lenders won’t buy you day after day for the payment, since for them it is interesting to keep the property to resell it, many times the profit obtained with this sale is bigger than the payment interest.
On the other hand, the fact that you are dealing with individuals or companies that don’t have to follow strict credit standards (like banks)
You can succeed in extending the payment time of your debt, since one of the great advantages of hard money is flexibility.
That is, hard money investors are not subordinated to strict and irreducible credit policies like many government or bank loans.
Therefore, knowing about the existence of hard money lenders can provide excellent business for your career within the real estate market. Just use these services at the right time, taking advantage of the real bargains that sometimes appear around.
Negative points of hard money lending
Now that we have seen what would lead us to look for a hard money lender to do business, let’s check what would prevent us from looking for that kind of creditor.
But, it is worth noting that weighing the pros and cons is the most important in the process, because there will never be only advantages or only disadvantages, but a mixture of both.
Well, the first negative point I would like to highlight is that hard money loans have one of the worst LTV’s in the market. As I explained before, LTV means Loan To Value, that is, the percentage value of the property that will be loaned.
While in the case of regular mortgage loans the LTV is around 80%, in the case of hard money lending it is around 50 to 70%. It’s not such a glaring difference, but it may be that these 15 or 20% make all the difference to realize a certain business.
In addition, experienced professionals within the real estate market can increase the LTV of mortgages. For example, flippers who have expertise in this area often get a higher value from banks when it comes to mortgage lending.
The second bad thing (and perhaps the worst of all) about this type of loan is the interest rates, which are higher than most other ways of getting money for credit. In this sense, the values of these rates vary from state to state, but by 2020 they were around 7.5 to 15%.
Finally, I have to point out that although there is some flexibility on the part of some hard money lenders, the payment term is usually quite tight, ranging from 6 to 18 even. Therefore, make sure to get the money as soon as possible.
I hope this article has been useful for you to better understand the role of hard money lender and how this professional can be the salvation for your business within the real estate market.
Although it is a great opportunity for those who need fast money, many people can’t easily find good hard money lenders out there. The problem is, then, not only in not knowing what this professional is, but also in knowing where to find one out there.
In addition, when finding such a creditor, it is necessary to ensure that he follows all the standards that make the business ethical, responsible and socially just. This is exactly what we at Br Capital USA value.
We want to increase the connection opportunities within the real estate market, uniting all stakeholders. However, we want to do this in the fairest and most conscious way possible, so that all sides benefit. It is not enough to value one professional to the detriment of others.
Finally, we truly believe that capitalism is a way to generate inclusive opportunities that make collective life much better. Therefore, our purpose is to connect you with the best hard money lenders in the USA so that you can take advantage of all the good opportunities that arise in your path within the real estate market.