Hard money loans have their time and place for many people, especially real estate investors. If you are trying to break into real estate investing or you are already an investor and want to grow your portfolio, you might find many more options with a hard money lender versus a traditional lender.
Just like any loan, hard money loans are better for some transactions than others. Here are the top reasons to consider hard money lending.
1. Investing in Fix and Flip Properties
If you love buying undervalued properties, fixing them up, and selling them, you likely need financing fast. Most fix and flips require cash because traditional lenders won’t approve the property.
Hard money loans can provide the funds you need fast (sometimes in as little as a week), so you have the money to not only buy the property but also fix it up. Since most fix and flip investors flip properties in 6 months, you’ll pay the loan off long before it’s due.
2. Wholesaling Properties
If you don’t have any interest in holding onto properties or fixing them up, you can be the middleman working as a wholesaler. If you’re great at finding discounted properties and have a network of investors you could sell the property to quickly and for a higher price, you earn the difference between the prices.
With a hard money loan, you can have the cash necessary to buy the property fast, so you have it to market to your network of investors to sell.
3. Buying Foreclosures
If you’re bidding on homes at foreclosure auctions, you’ll generally need cash. Banks usually want the full amount paid within 24 to 48 hours of winning the auction. Traditional bank financing doesn’t work that fast, but hard money loans are almost synonymous with cash since you can get the funds quickly.
4. Buying Bank-Owned Properties
If a bank can’t sell a property at auction, it becomes bank-owned. They may assign a real estate agent to it, allowing him/her to sell the property or try to sell it themselves. Since they don’t want to keep the property on their books, they usually sell the property as-is and as quickly as possible. Having cash available fast may allow you to get a nice discount on the property, making it easier to turn a fast profit.
5. You are Ineligible for Other Financing
If you don’t have great credit or you’re buying a property traditional lenders won’t approve of, hard money loans save the day. Since these loans are focused on the collateral and not your credit or debt ratio, it’s a lot easier to get the financing you need and fast.
Hard money loans can help you in situations that traditional loans can’t. They are also a much faster funding option when you need money fast. Whether you’re buying a home that requires cash on the spot or you’re buying a home most lenders wouldn’t approve of, hard money lenders can help you in ways that might otherwise leave you without the real estate investment you wanted.