Real estate remains an investment of choice worldwide, but it takes a certain kind of investor get the best out of it.
To participate in real estate, you must be prepared financially as transactions typically run into five figures and above. It’s a competitive market and the players with ready money get the best deals while others are still looking for funds. Hard money lending continues to rescue many investors that would otherwise have been frustrated out of the market.
What Is Hard Money Funding?
Hard money funding is a specific kind of asset-based arrangement for borrowers seeking funds for real estate projects. Such projects include; purchase or construction of residential, commercial or industrial projects depending on the selection criteria of the lender.
Unlike in the banking sector, the criteria for lending here is based on the borrower’s asset position rather than their credit scores or financial history. Hard money lenders may be private investors or companies, and they tend to be flexible in their requirements so feel free to approach them to discuss your funding needs.
What Kind Of Terms Can You Expect?
- The property in question will be appraised by a professional to determine its value after the planned repairs/rehabilitation. The lender will make you an offer based on that value rather than the present value of the building.
- Hard money funding will usually come at a higher interest rate compared to a conventional loan. This is due to the higher risk the lender will carry when they decide to approve the loan.
- In most cases, you should expect a balloon loan payment. You will be expected to make interest-only monthly payments and then pay off the principal in a lump sum at the end of the term.
- The loan term varies and can stretch from a few months to about 3 years. Discuss with your selected lender to agree on the loan term.
- Probably ever hard money lender out there has a website so take some time to go through their terms and conditions even before you approach them. This will help you narrow down your choices.
Remain Updated With Hard Money Industry News And Trends.
You may be surprised to know that when you factor in bridge and payday loans, the hard money lending industry is now worth circa one trillion dollars of funding annually. And, it will only increase with time. The convenience it brings compared to traditional banking and credit unions is unparalleled. Continuous innovations in technology mean that potential borrowers can even log in their information to lenders’ online portals from the comfort of their homes/offices and “start the ball rolling” right away.
Generally, the signs indicate that the market is healthy and will continue growing. Whatever kind of real estate project you have in mind whether a new construction, house flip, outright purchase or rehabilitation, etc. now is a good time to enter the market.
A 2016 LinkedIn Pulse study reports that the market is showing steady growth, and healthy metrics combined with plenty of ready capital meaning good opportunities for borrowers.
As a potential stakeholder, it’s prudent to keep abreast of lender news, and trends to keep you in the loop of who is doing what and know how you can also take an advantageous position in collaboration with a reputable hard money lender.