Is Hard Money A Viable Source Of Funds For Real Estate Investing Deals?

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by: simon87
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Word Count: 557
Date: Fri, 29 Apr 2011 Time: 1:52 PM

 Hard money is one of the most popular sources of funding for real estate investing deals.   Until the current slump in the real estate market started, hard money was easy to get as long as the property met the lender's requirements.

 Most hard money lenders have recently tightened their lending requirements, but they are still quite easy to get compared with regular mortgages.

 Should hard money be a main source of financing for your real estate investing deals?

What is hard money?
Hard money lenders usually lend money secured by real estate.   Most hard money lenders do not need the borrower's credit to lend money, but depend on the collateral only.

Even though recently a lot of hard money lenders are including some credit rating in their under-writing procedures, they still put less emphasis on credit of the borrower.   However, most hard money lenders will require that the property has at least 40% equity or more to qualify.

 Most hard money lenders will make the money available in a few days if necessary.

 Therefore, interest rates for hard money are usually higher than traditional mortgages. Most hard money loans charge at least 18% interest plus points.

The payments are usually interest only, meaning that the amount you owe remains the same.    The lifetime of a hard money loan is rarely more than 6 months.

 When buying a rehab property, it is unlikely to get a traditional loan.   It is better to use a hard money loan to finance such a loan.

 Once you fix it, you must make sure your exit strategy involves paying off the hard money loan in a few months.

 In a downward real estate market, it might be risky to expect to fix and sell the property within a few months.

 For every month you keep your property, you have to pay high interest that eats into your profits.

 When you buy properties on terms, a hard money loan would not work.

 The next step after you determine that hard money is a good option for you, you must then find a reliable lender that finances deals like yours.

 Your real estate investing business would greatly benefit by establishing a relationship with such a lender.

 You must demonstrate that your exit strategy is viable.   A hard money lender's worst nightmare is an inventory of property sitting in their balance sheets tying up their cash.

They need to know that they will get their investment in a few months at the very least.

When presenting your deal, it is a good idea to give them your experience, your resources such as rehab crew, similar deals you have done in the past if applicable, and even prospective buyers if you have them.  This will cement the deal and make them more comfortable to lend you money.

 Ultimately, an hard money loan is made viable by the property and a quick exit strategy that pays it off in as little as 3 months.

About the Author

No matter what type of deals you have, selling your houses fast is important to the success of your real estate investing business. Find out how an interactive real estate investor website that also builds your buyers list can help you sell your houses fast even in a depressed real estate market.

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