Learn How to Get a Hard Money Loan

The Benefits and Drawbacks of Hard Money Loans

Hard money loans are ideal for investors with short-term ambitions, such as fix and flippers or real estate developers disposing of units. Hard money loans can also be beneficial for investors with long-term projects, such as cash-flowing commercial or residential real estate rents.

But, these investors will almost certainly need to be more experienced, have a solid portfolio and track record of success, and have access to a robust network of lenders because they will need to get a long-term loan solution before the hard money loan is repaid.

But hard money loans are quite fast. Whilst the lender would like to get their money back rather than the property, the collateral itself has good investment potential, so they won’t need to look over your loan application with a fine-tooth comb for long periods of time.

This can assist investors close agreements swiftly, especially if they’ve already worked with a lender. In some circumstances, a phone call to the lender is followed by an all-cash offer and a handshake with the seller minutes later (although there will still need to be some paperwork).

Hard money loans are also very flexible. Banks and regular lenders are frequently bound by rigorous lending rules, whereas hard money lenders might be more flexible in terms of repayment, interest rate, the property in question, and other criteria. This is a huge relief for investors who don’t want to be saddled with a non-negotiable loan origination charge or a dreaded balloon payment. Yet, there are some disadvantages.

Hard money loans carry substantially higher interest rates, which are frequently in the double digits. Lenders that want to safeguard their own interests may additionally include a number of fines and penalties for breaking the loan terms. It can be tough for new investors to establish a relationship with a fair and reputable hard money lender—and there are plenty of loan sharks in the water.

The future is also unknown. If you can’t sell the property in time or secure long-term financing, you may lose the property and the effort you’ve put into it, or you may have to take out another high-interest swing loan to get by.