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Is Hard Money Lending Right for You?

by Emily Koelsch
Hard Money Lending

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When you’re thinking through your next big real estate project, a key factor to consider is financing, hard money lending rental loan may be on your list. Obviously, it’s a requirement for moving forward but it’s also something that can have a big impact on short and long-term success. Taking advantage of the right financial tools can help investors be more strategic about their projects and improve their returns. 

Hard money lending is one such tool that investors should understand and consider. Hard-money loans are non-conforming loans for commercial or investment properties. They are not from traditional lenders that have to comply with extensive regulations but instead from individuals or businesses that specialize in this type of lending. 

Hard-money loans are secured loans that are guaranteed by the property the loan is being used to purchase. They are often short-term although they don’t have to be. One of the most common uses of hard money lending is flipping a house. For these projects, investors need money fast but they don’t need it for a long time. 

While fix-and-flip projects are often what comes to mind when people think of hard money lending, more and more borrowers are using hard money loans for investment properties. This type of financing is ideal for making a quick purchase of a property or for investors that can’t get approved for a traditional loan.  

That said, hard money lending comes with some distinct pros and cons, so it’s important for real estate investors to be well-informed before taking on this type of debt. 

Benefits of Hard Money Lending

One of the key benefits of hard money lending is that the process is fast. Borrowers are approved based on the value of the property, rather than on a comprehensive evaluation of the borrower’s credit and financial history. This means investors can get money in days rather than weeks, which can be important if a good opportunity quickly pops up. 

Additionally, for individuals that have been denied by other lenders, hard money loans can be a good way to fund a project. Because the loan is secured by the property, it offers an avenue for financing when traditional lending isn’t an option. 

Disadvantages of Hard Money Lending

Historically, there have been two primary disadvantages of hard-money lending: it’s more expensive and offers shorter repayment periods. Because hard money loans mean more risks for lenders, many charge above-average interest rates and require higher down payments. Additionally, because these are often short-term loans, the repayment periods have traditionally been shorter. This can mean increased borrowing costs and risk for investors. 

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That said, it’s important to note that new technology and tools have enabled hard money lenders to provide borrowers with fast loans while also mitigating risks. The result is that there are hard money lenders that make it possible for investors to get a low-interest, long-term loan without having to put more than 10% down. 

When considering a hard money loan, it’s important for borrowers to be aware of the potential increased risks and expenses and to avoid lenders that charge high rates, require large down payments, or demand short-term repayment of the loan. 

Find the Right Hard Money Lender

Hard money lending presents some unique risks for borrowers, so it’s important to do plenty of research and only work with reputable lenders. It’s also important to pay attention to rates and terms to ensure that the deal will be cost-effective and that the repayment schedule is not too aggressive. 

When looking for a lender, look for those with a track record of successful projects, lenders that have a high percentage of repeat customers, and companies with systems and platforms that aim to keep borrowing costs down. 

One company that checks all of these boxes is Kiavi. They have already partnered with over 46,000 real estate investors, 95% of their projects have successful exits, and 82% of their transactions are with repeat customers. 

One of the things that sets Kiavia apart is that it uses advanced technology to remove barriers that have historically slowed down and impeded the lending process. Their tech platform improves the borrower’s experience and leads to increased flexibility, speed, and simplicity for customers.

Plus, Kiavia offers two distinct products to meet investors’ needs: 

  1. Bridge Loans. These offer short-term financing for the purchase and rehab of investment properties. Think of this as a “fix and flip” loan for short-term financing. Interest rates for these loans start as low as 6.95% and cover up to 90% of the purchase price. 
  2. Rental Loans. These can be used by an investor to finance a new purchase, refinance a property, or free up cash for future investments. There are lots of financing options for these types of loans including 30-year fixed, interest only, 5/1 ARM, and 7/1 ARM with interest rates as low as 6.625%. 

How to Get Started

With the use of advanced technology, getting started with a hard money loan is easier than ever. Investors can get pre-qualified online here. Once that step is done, it’s simply a matter of finding the right property, determining the right financing tool, and submitting an official application, which is free. 

You can visit Kiavi.com to get started or learn more about their platform. And, once you’ve found the right investment property, visit ezLandlordforms.com to screen Tenants, create a Lease, and access all the property management tools you need. 

Hard Money Lending: FAQs

Is hard money lending a good idea?

When considering hard money lending, it’s essential to weigh the pros and cons. While it offers quick access to funds and flexible approval criteria, higher interest rates and shorter repayment terms can pose risks. Careful evaluation of your financial situation and investment goals is crucial before deciding if it’s a good fit for you.

Can you make money with hard money lending?

Yes, hard money lending can be a profitable venture. By lending funds to real estate investors in need of quick financing, you can earn attractive interest rates and potentially generate a steady stream of income. However, thorough research, risk assessment, and due diligence are essential to maximize your chances of success.

What is a hard money loan example?

A hard money loan is a type of financing typically used by real estate investors and individuals with poor credit. For example, imagine a house flipper who needs quick funding to purchase a property at auction. They can secure a hard money loan from a private lender, using the property as collateral. The loan terms may include higher interest rates and shorter repayment periods than traditional loans.

What is the minimum credit score requirement for obtaining a hard money loan?

The credit score required for a hard money loan can vary depending on the lender’s criteria. While traditional lenders typically require a good credit score, hard money lenders focus more on the value of the property being used as collateral. Therefore, even borrowers with poor credit may still be eligible for a hard money loan.

What is hard money vs soft money loans?

Hard money loans and soft money loans are two distinct types of financing. Hard money loans are backed by the value of a property, with higher interest rates and shorter terms. In contrast, soft money loans are based on the borrower’s creditworthiness and typically offer lower interest rates and longer repayment periods.

What interest rate applies to a hard money loan?

Hard money loan rates may fluctuate, but typically, the average interest falls within the range of 10% to 18%, surpassing conventional loan rates. Additionally, these loans commonly incur extra expenses such as points and origination fees, spanning from 2% to 6%.


Emily Koelsch, ezLandlordForms Contributing Writer

Emily Koelsch WriterEmily Koelsch is a freelance writer and blogger, who primarily writes about business, real estate, and technology.

 


 

 

 

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