What are the Best Hard Money Lenders, and is Hard Money Lending Worth It?
Even the best hard money lenders can be problematic. Read on to find out more.
Hard Money Lenders and Hard Money Funding
If you’re looking to flip houses, you may have heard these terms. But what is hard money funding, and can it work for you?
Hard Money Funding: What Is It?
Hard money loans are asset-based loans that can fund any real estate investment. These loans are based on the property value. There is no need for background checks or credit scores. Some lenders even offer hard money loans based on the after-repair value of a building. Hard money lenders make finance house flipping with their asset-based loans.
Hard Money Funding: Positives
Since it’s based on the real estate value (before or after repair), a borrower with poor credit can get these loans. Hard money loans are fast, sometimes even within 24 hours of application.
Hard Money Funding: Negatives
Interest rates can be very high, as in three times that of banks. Terms can be very short, as in 6 – 18 months, versus a standard 30-year mortgage.
Plus a hard money lender wants you to have some skin in the game, typically at least 10% of your own money. That way the lender knows their interests are protected, because you don’t want to lose your money. Hard money loans also tend to not be subject to consumer lending regulations. So, caveat emptor.
How is Hard Money Funding Used?
If you go ahead with hard money funding, its use is virtually always for real estate projects. These are either house flipping, or real estate investments.
Fix and Flip Loans
House flipping consists of buying a property, repairing it, and selling it for a profit. Fix and Flip loans are one of the most common types of hard money loans. For house flippers, having fast funds for their flips is a necessity. These hard money loans are made for house flippers looking to flip a property by making some upgrades and selling it for a profit.
Fix and flip loans are short term loans (6 – 12 months) covering almost all the house flipping costs. Hard money funding is not only used to cover the property value of the building. It also pays for a portion of the repairs needed to flip. For example, some hard money lenders even offer to base the loan on the after-repair value of the flip. This gives the house flipper more funds to flip with from fix and flip lenders.
Long Term Rentals
House flippers don’t always sell the buildings they repair. Many make passive income by renting their properties. For those looking to acquire and upgrade large rentals, hard money funding is essential. This type of flipper financing lends on the underlying asset of the property.
To make the most of long-term rentals, upgrading and repairing the property is necessary. Here, hard money loans are based on the after-repair value of the property. House flipper funding for large one-time repairs to a property helps improve the property for higher rents. It also helps to offset the cost of the repairs.
Vacation Rental Flips
With alternative rental sites like Airbnb becoming more and more popular, house flippers are looking into flipping vacation rentals with hard money loan lenders. Vacation rentals can turn over large profits but many will require large repairs to get more bookings. These repairs and modern upgrades are necessary to ensure solid bookings throughout the year. Using hard money funding to make upgrades is faster than using a traditional lender. Like all flipper financing, the loan is based on property value and not the applicant’s credit history.
Paying cash for a property is a great way to lower costs for a property. But it leaves gaps for funding repairs. Home rehabs are ideal for one-time large repairs. This can be for a flip that they bought in cash, a rental, or anything in between.
Often when looking to charge more in rent, house flippers will add amenities and upgrades to their properties. Home rehabs can also be for investors looking to sell off property and maximize their return by adding a few upgrades. With only using flipper financing for the repairs, the house flipper can save money on down payments. This means a larger profit margin via hard money lending. Hard money funding can be a way to make sure projects finish on time.
Hard Money and Bridge Loans
Sometimes house flippers need to refinance properties to prevent foreclosures, get better rates, or get more cash to finish their flip. Bridge loans, a special type of flipper funding, can help flippers complete their projects to save them from foreclosure. Bridge loans work to ‘bridge’ cash gaps for a property. This cash is used to finish the flip, sell the property, or prevent foreclosure.
Hard Money, Bridge Loans, and Foreclosures
Sometimes, house flippers will use hard money loans to buy foreclosed properties. This makes them a great option for someone looking to pounce on a great deal in the fast-moving real estate market. Sometimes bridge loans fund short sale loans, or even the acquisition of off-market properties. They can help you get a hard money loan for auction property.
Hard Money and Refinancing
Reasons for refinancing include to prevent foreclosure, fill in cash flow, or make sure a project is done on time. Hard money funding can help with all of these issues. This type of funding works for house flippers who need a one-time influx of capital.
Hard Money Funding: Beyond the Flip
Hard money funding can be used for more than flips. It can also be used for commercial real estate financing. This is for commercial properties such as retail stores. Note: hard money loan rates will vary.
Options Beyond Hard Money Lenders and Funding
Flippers and commercial real estate investors have choices beyond hard money loans. They can try a home equity loan for flipping, or an investment property line of credit for real estate investments. Another option is a business line of credit.
Yet another option is a cash out refinance loan, or a permanent bank loan/online mortgage. Rates and terms will vary. But for great rates, have you checked out what Credit Suite has to offer?
Check Out Commercial Real Estate Financing from Credit Suite and Connect to Hard Money Lenders
Amounts range from $100,000 – $20,000,000. This financing can be used for refinancing a property, even if you are doing a cash-out refinance. Maximum LTV 70%.
Loan-to-values range from 55 – 65%, depending on the purpose of the loan. Plus your clients can also get SBA loans. Renovations get loan to value of up to 60%.
Credit Suite has funding programs available including conventional property financing, money for investment properties and hard money loans, bridge loans and loans for the purchase of commercial real estate.
Commercial Real Estate Financing for All Types of Buildings
Credit Suite offers financing for many different, even unique property types. Get funding for industrial offices (general or medical/dental), light manufacturing buildings, self-storage facilities, and more.
Details on Credit Suite’s Commercial Real Estate Financing Program
Approval amounts go up to $20,000,000. Bad credit is accepted. Use the real estate as collateral. You will need to provide bank statements. House reseller financing or a commercial real estate loan can be a big step, let’s take it together.
The Best Hard Money Lenders? The Jury is Still Out on Whether This Form of Funding is the Best Idea
Hard money funding can be a good choice for house flippers and commercial real estate investors who have bad credit or want/need to get money fast. But interest rates can be high, and terms can be short. Plus there is little regulation. Credit Suite can help you get funding for commercial real estate or house flipping, with better rates and terms than you would expect.