Three ways to utilize a private loan to succeed in the real estate business

Hard money loans are often misconstrued and people associate hard money loans with loan sharks. The reality of it is that hard money lenders are not saviors, nor thieves. They are an available resource that is sometimes very necessary in today’s volatile real estate market, especially in a heavily government-regulated banking industry.

When a real estate investor is faced with not being able to obtain a traditional financing loan from a bank, the alternative is a hard money lender. Private money lenders are ideal for short-term loans, especially for real estate investors, as their terms range from several months to a few years.
Several ways to utilize a private money loan to help real estate investors succeed, which includes:

  • When traditional banks require extensive credit or income verification, this may not be feasible for real estate investors, especially those that are self-employed and subject to more stringent lending requirements and conditions. Hard money loans are perfect for real estate investors who are looking for short-term financing options.
  • Hard money loans are ideal for construction loans, rehab loans and renovation loans, allowing for interim bridge loans. These types of loans are extremely flexible and offer funding for valuable repairs up front. Often traditional banks will not loan on residences that are deemed “non-livable,” which can include residences that do not have flooring, kitchens or even bathrooms. In order for an investor to fix these to make a residence qualify for traditional funding, these interim hard money loans may be used for repairs.
  • As many hard money loans offer low loan-to-value (LTV) ratios, it offers real estate investors the ability to keep capital free so they can use available funds towards the purchase of additional properties.

Hard money loans offer a number of additional benefits for real estate investors, including flexible terms, fast closings and a non-traditional application process. People with questionable credit are also able to get hard money loans, as hard money lenders look at the property’s potential value, instead of simply a credit score. Many times loans are based on asset backing, allowing real estate investors to put up other properties as collateral instead of relying on a steady financial history.

Transaction funding is also excellent options for double closings, where it would be nearly impossible to close on two properties at once with a traditional lender. Scheduling back-to-back closings is also extremely financially beneficial to both parties, as it helps facilitate and fuel the economy’s housing market.

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