If you’re like many people, you know that many investors prefer to use hard money loans – but does your investment strategy for the rest of 2023 involve working with a hard money lender?
Does a Hard Money Lender Fit Into Your Investment Strategy for 2023?
In this guide, we’ll navigate through the role a hard money lender could play in your investment strategy for the coming year. We’ll cover:
- What is a hard money loan?
- Advantages of hard money loans
- How to incorporate a hard money lender into your investment strategy
- FAQ on hard money lenders
Here’s a closer look at each.
What Is a Hard Money Loan?
Hard money loans are short-term lending instruments that real estate investors use to finance an investment project. They’re different from traditional bank loans because they rely on the property’s value to secure the loan, not the borrower’s credit score. Because of their nature, hard money loans can offer unique advantages for the savvy investor.
Related: 7 advantages hard money loans have over traditional bank loans
The Advantages of Hard Money Loans
One major advantage is speed. When a lucrative deal pops up, time is of the essence. Hard money loans can be secured in days, not weeks like conventional loans. Flexibility is another big plus. A hard money lender assesses each deal individually, which allows for a more personalized lending solution.
How to Incorporate a Hard Money Lender into Your Investment Strategy
Incorporating a hard money lender into your 2023 investment strategy can give you an edge in a competitive market. For instance, you can use a hard money loan to finance a fix and flip project, quickly acquiring the property, renovating it, and selling it at a profit. Alternatively, if you’re looking to invest in a rental property but the conventional banks are dragging their feet, a hard money loan can help you snatch up that property before it slips away.
Related: How to choose the right hard money lender
Why Do Many Investors Prefer Hard Money Loans?
Many investors prefer hard money loans to conventional mortgages because of their:
- Speed: Real estate deals often move quickly, and investors need to secure funding rapidly to seize opportunities. Hard money loans typically have a faster approval and disbursement process compared to traditional bank loans. Once you’ve established a relationship with a hard money lender, you might receive funds within days, not weeks.
- Flexibility: Hard money lenders typically offer more flexibility than traditional banks. They provide loans based on the property’s potential after repairs or improvements, not just its current value. This approach can make it easier to finance properties in need of significant work, which are often the ones with the highest potential for profit.
- Fewer requirements: Traditional banks usually have stringent requirements for borrowers, including high credit scores and income levels. Hard money lenders, on the other hand, focus more on the value of the property being purchased rather than the borrower’s creditworthiness. This focus can make hard money loans an attractive option for investors with less-than-stellar credit or those who are self-employed.
- Interest-only payments: Some hard money loans have interest-only payment terms, meaning the monthly payments are lower than they would be with a typical amortizing loan. This arrangement can be beneficial for investors who plan to sell the property quickly and repay the loan in full after the sale.
- Short loan terms: Hard money loans usually have short loan terms, often around 12 months. This short-term approach suits investors looking to flip properties, allowing them to repair and sell the property without being tied into a long-term financial commitment.
Each investor’s situation is unique, so it’s crucial to carefully evaluate all financing options and choose the one that best suits your investment strategy and goals. For many investors, the speed, flexibility, and favorable terms of hard money loans make them a preferred financing choice.
Related: Asbestos in house-flipping
FAQ About Hard Money Lenders
Check out these commonly asked questions about hard money lenders. If you don’t see the answers here, please call our office and we’ll get you the information you need.
Why do investors use hard money loans?
Hard money loans are used for their speed, flexibility, and less stringent requirements compared to conventional bank loans. They’re also helpful for investors looking to rehab and flip a property quickly.
Who qualifies for a hard money loan?
Most hard money lenders aren’t overly concerned about your credit history. Instead, they’re interested in the property’s value and your investment plan.
How fast can a hard money loan close?
One of the significant advantages of hard money loans is their speed. With all the necessary documentation, a hard money loan can close in as little as 7 to 10 days.
Can I live in a home purchased with a hard money loan?
Typically, hard money loans are intended for investment properties, not primary residences. The terms of these loans are usually short, and the interest rates are higher than traditional loans, making them less suitable for long-term, residential use.
Are hard money loans more expensive?
Yes, generally, hard money loans come with higher interest rates than traditional bank loans. They also include additional costs, such as closing fees, appraisal fees, construction draw fees, and others. However, the speed and flexibility they offer often outweigh the higher costs for investors.
Related: 5 reasons to invest in a single-family home this year
How do I find a reputable hard money lender?
It’s essential to do your homework when choosing a hard money lender. Ask for recommendations from fellow investors, check online reviews, and don’t be afraid to ask potential lenders for references.
What happens if I default on a hard money loan?
If you default on a hard money loan, the lender has the right to take possession of the property through foreclosure, sell it, and recoup their investment. That’s why it’s crucial to have a solid plan in place before obtaining a hard money loan.
Remember, every hard money lender might have slightly different terms and conditions, so it’s important to understand these fully before entering into an agreement. If you have more questions, don’t hesitate to reach out to our office. We’re here to help you make informed decisions about your real estate investments.
As you refine your investment strategy for 2023, consider whether a hard money lender could help you achieve your goals. These lenders offer unique advantages that can help you stay ahead of the competition and seize exciting real estate opportunities.
Do You Need a Hard Money Loan?
Paces Funding is the top hard money lender in Georgia, North Carolina, South Carolina and Tennessee. Apply for a hard money loan here or click through our site to find out how we can help you now!