Learn How to Get a Hard Money Loan
Determining the exact structure of your business (for example, LLC or S-corp) will depend on your circumstances, but you definitely want to separate your personal assets from your real estate enterprise and eliminate the possibility of the lender coming after you, your home, or your personal, tangible goods.
Keep in mind that hard money lenders are not regulated in the same way that banks are, so you will need to exercise extra caution. Consult with a lawyer about the papers.
Check that the lender has revealed all costs and has supplied a payback schedule. Make sure it contains important information, such as how much of the payment goes toward interest.
If there are any red flags during the application process, it is a hint that this lender is not trustworthy. You’ll also want to get insurance for your assets, which lenders often require because they have a vested stake in your property.
Many of the closing charges, fees, and underwriting expenditures will be borne by you, so ensure that you can cover these costs in order to avoid putting yourself under undue financial strain on top of having to repay the loan.
Create a Strategy for Fast Repayment
Recall that hard money loans are intended to be short-term solutions. Many hard money loans have a twelve-month repayment period, and if you do not repay the loan by then, you risk losing the collateral.
Some lenders will allow you to make a lump-sum payment after your project is completed. If you don’t plan on improving and then selling the property, you’ll need to find a long-term financial solution throughout this time.
Fortunately, with an asset that now has higher value after completion or provides cash flow, finding an institutional lender interested in assisting you with a long-term loan should be easier. If the worst happens, you may need to acquire another bridge loan to replace your initial hard money loan. While this is obviously not an ideal solution—it highlights the necessity of ensuring your team is on board to complete the project on time.
