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We want to thank Catherine Way for this post.
Seasoned real estate investors and newbies are always looking for the latest trends, whether its how to use Airbnb in a flip, how to stage for more money, or get the best deals for their latest investments.
For any real estate investor finding funding for your flips or rentals can be harder than finding the flip itself. Due to this, many investors are turning to hard money lender to get the most for their investment, while using the least amount out of pocket.
Hard money loans are a great tool for any investor use, but understanding when to use them, and how to use them properly is key, like any other investing trick.
For any investor looking to learn more about how a hard money loan may help them keep on reading.
“Hard Money loans make it easy for any real estate investor to start flipping and renting today with little of their own capital. Hard money loans use a properties ‘after repair value’ to fund the purchase, repairs and everything in between to get an investment move-in ready. They often make it easy for first-time house flippers to start out, as it eliminates risking your credit, and assets. By using a hard money loan, real estate investors eliminate the risk of using their own capital on a deal, but also will still see the large returns from that risk.”
– Loren Howard, Prime Plus Mortgages – Hard Money Loans Phoenix
Hard Money loans are real estate loans that are secured in the real estate value of a property, unlike a traditional loan which is based on a properties current value, and credit rank of the borrower.
Hard money loans are secured in real estate properties, and lend on the properties After Repair Value, or ARV. To calculate this, they look at the current properties worth, estimated repairs, and calculate to find the properties after repair value.
By using an after repair value, a hard money lender can determine what the profit margin of a house should look like, making it easier to fund the repairs and purchase of a property to maximize its value.
Hard money loans make it easy for first time investors, who may not have enough of their own assets to put down for a new investment, or who may not have a great credit score and risk being denied by a traditional lender.
Another perk of hard money loans is their funding times. While a traditional loan may take weeks to approve, a hard money loan can be approved and funded in as little as two days. Which is incredibly useful or a house flipper looking to buy a property quickly, and with minimal hassle.
Even though hard money loans make it easy for many investors to start house flipping, like any type of loan there is a risk.
Hard money loans tend to be a bit risky for these 2 main reasons, higher interest dates, and shorter terms. Hard money loan being back by real estate have much higher rates than a traditional loan, as RE Tipster reports, “ Interest rates for hard money loans range from 10 – 15%”.
The other risk for investors is the terms, while more conventional loans fall around the 30 year mark (resulting in lower payments), the standard hard money loan term check in at anywhere between 6 months to 2 years.
This means higher monthly payments for your hard money loan. While this may shock home, for real estate investors these terms are pretty standard, and the time frame makes perfect sense for someone looking to fix and flip a property, or even using a bridge loan.
Now that we know the basics of what a hard money loan is, lets see the best ways a real estate investor can use their hard money loan.
Now that we know how a hard money loan can be beneficial to real estate investors, looking for fast funds for their investments, we can look into the best ways to use hard money loans.
The top 3 used for Hard Money loans are:
- Fix and Flips Loans
- Home Rehabs Loans
- Bridge Loans
We will break down each of these below.
Fix And Flip Loans are used to buy properties, make crucial repairs to bolster the home value and then sell for a profit. These hard money loans make it easy for house flippers to fund their properties as they cover the purchase, repairs and even the listing of different real estate investments.
Home Rehab Loans are similar to fix and flip loans but only cover the estimated repairs. Home Rehab loans are used on properties that the real estate investor already owns to repair and upgrade the property. These tend to be used on rentals, to add new amenities or upgrades to make their property more appealing. They could also be used by investors who are looking to finance the repairs on a flip before putting it back on the market to make a bigger profit.
Lastly there are Bridge Loans. Bridge loans are used to fill gaps in funding for properties, and help real estate investors get the funding they need for their projects. This hard money loan is literally ue to bridge the gap between fundings, and help save properties from foreclosure. Commonly it is used to help refinance loans and get the funding sorted out.
Hard money loans have many uses and how they can be used is dependent on the hard money lender, but commonly they are all pretty similar.
Finding a flip can be very difficult for many real estate investors, most of them using wholesalers to find undervalued properties. They often have many great properties for house flippers to use.
Finding the right lender for your real estate investments can be very easy.
Like wholesalers, hard money lenders can be fund in Facebook groups, online searches, and networking events.
You should be able to find a reputable hard money lender by reading the reviews, seeing their social media pages, and talking to other real estate investors.
You should always look for highly reputable hard money lenders, with great reviews, customer service, and of course great terms and rates.
In fact a great lender will often be able to walk you through your fix and flip.
You can learn more about how to find a great hard money lenders in arizona here.
Hard money is a great tool for real estate investors to use to get the funding they need for properties quickly and with little hassle.
Hard money can be used to start flipping, or even fill gap of funding, or help upgrade a rental.
In case you missed it, here are the 3 lessons about hard money loans:
- What is a Hard Money Loan: Hard money loans use real estate ‘after repair value’ instead of credit scores to fund the purchase, repair and sale of a property.
- How To Use A Hard Money Loan: Fix and flip loans, home rehab loans, and bridge loans are the most common hard money loans that make it easy to buy properties, make repairs, and get them ready for investing.
- How To Find A Hard Money Loan: Word of mouth, referrals, group and reviews are a great way to find the best hard money lenders.
Have You ever used hard money?