Some of the best commercial real estate investing opportunities fall in your lab in a moment’s notice and you have about a moment to take action or lose it forever. When you have a lot of money out in loans already though, it’s tough to get the money from a investment property mortgage lenders in a time frame fast enough to make it work. And if you need to secure renovation financing in order to flip the commercial property investing project, you’ll have an even harder time. This is where hard money rehab loans come in to play.
Hard money rehab loans use property itself to back up the loan, rather than your credit worthiness. If the property isn’t worth a lot now, but with a little renovation could be a big cash cow, you might be able to secure hard money rehab loans for it based on the potential value it could hold in the future. If this is the first you’re hearing of hard money rehab loans, keep reading to get all the info you need need on them!
- Who puts up the cash for hard money loans?
Unlike traditional mortgage loans that are funded by banks and are regulated by the FED, hard money loans are funded by private investors who are looking to make some money on their capital. This might be a single private investor, a group of individuals who each fund a fraction of your investment, or a group of investors who pooled their money to specifically offer hard money loans through a broker. - What are the advantages of using a hard money loan?
You might consider funding your real estate investment with a hard money loan if you need to move on it faster than you’d be able to through traditional bank lending. Another benefit to using hard money loans is that you’re often able to secure funding based on the equity the property you’re securing has, if you don’t have the credit worthiness to get the loan on your own merit. Additionally, hard money loans are frequently used to rehab a building and flip it for more, so it’s typical to get funding above the value of the property in order to renovate it. You might have a hard time getting a traditional lender to give you the money to purchase a building and then give you thousands of more dollars to renovate it, but this is what hard money loans are designed for. - How else are hard money loans different from traditional loans?
Lenders who fund hard money loans are taking on a considerably higher risk than those of traditional loans. As a result, you’ll find the interest rates associated with hard money loans to be higher than that of a traditional mortgage.
You’ll also find the time frame in which hard money rehab loans are repaid to be considerably shorter than that of a traditional mortgage. With a mortgage, you might have fifteen, twenty, or thirty years to repay it. With hard money rehab loans, your repayment time frame is closer to five years.
Unlike traditional bank loans, the terms of hard money rehab loans are more negotiable though. If there is a sticking point that makes you resistant to getting a hard money loan that you are interested in, you might find that you have some wiggle room on it in reality. - Do hard money rehab loans have a stigma for being “shady”?
The concept of getting large sum of money quickly lends itself to making a person suspicious. And it’s true, there are some people in the hard money rehab loans industry that give you a loan shark vibe. There are an equal number of private investors who are trustworthy and just want to establish a mutually beneficial business deal. Every industry is going to have its bad and good apples.
The key to taking out a legitimate hard money rehab loan is putting forth effort in researching the best lender for your situation. Make sure you read the fine print before signing a deal for a hard money rehab loan. Ask questions. Trust your gut instinct. Talk to other borrowers who have used the lenders you’re considering. Know what you’re getting yourself into, and your hard money loan could be a great opportunity.