Why Use Hard Money Private Lenders?
So, you’ve seen a house that could use some work and you think that you could make something of it. The trouble is, you simply don’t have the cash on hand to buy it. What’s your first thought? See if you can get a loan. If that’s refused, what do you do then? For some people, they don’t even consider a traditional loan, they go straight to a hard money lender.
What is that exactly? It’s a non-traditional lender that can loan you the money with different terms and conditions than you would receive from a bank or normal credit institution. If this isn’t something that you’re familiar with, not to worry – you’ve come to the right place.
What is a Hard Money Private Lender?
A hard money private lender is someone who provides you with credit when you offer property as collateral. They are private investors, either individuals or groups, and they usually have plenty of experience in offering out these loans.
They don’t finance loans with money from deposits, which is how other traditional institutions do it, such as banks and other credit bureaus.
Hard money private lenders are business people and risk-takers, yes. However, they have private funds, which they use to provide quick financial loans. Due to the fact that it is private money, you can skip over most of the regulatory stuff that you’d have to go through if you applied for a conventional loan.
Why is this beneficial for them? Because they earn a lot from it. The loan terms are short, the interest rates are high and they have property as collateral should anything go wrong.
They clearly live by the words of Rich Dad, Poor Dad author, Robert Kiyosaki “As they say in the world of finance, ‘I’ll give you your price if you will give me my terms.'” It’s basically win-win for a hard money private lender.
However, most hard money private lenders like to build relationships and they often lend to the same people over and over.
Hard money lending is big business, with recent reports showing that there are 40% more private lenders now than there were just three years ago.
What do People Use a Hard Money Loan For?
A variety of things. As mentioned, it’s often to do with real estate. Real estate investors often lend to each other and they make big bucks using hard money loans. Here are the things that hard loans are most commonly used for:
House flipping
If you want to earn some money quickly, then one of the best ways to do it is by flipping a house. Real estate investors keep an eye on foreclosures or short sales, and when they need the cash, they simply skip the banks entirely and go straight to a hard money lender.
Development of Property
Smaller developers often use hard money loans when they have found a plot of land or old buildings to develop. In this case, it’s important that the developer either carries out the construction themselves or has a very close relationship with the construction team, as timelines need to be pretty quick in order to turn a profit and pay off the loan.
Personal loans
It’s not as common but some people do use hard money lenders to get access to cash quickly. They can take the loan against their property, but need to keep strict control of their finances so that they can pay off the loan. One way this can work is when homeowners to get a hard money loan to do some renovations to their home and then apply for traditional re-financing with their home revalued at a higher rate.
Why Should I Choose a Hard Money Private Loan?
The pros of using a hard money private lender are as follows:
* Avoid bank limitations
*Fewer requirements to fulfill – less paperwork overall
* Get cash much quicker than through traditional financing institutions
* Shorter term loan, so once you’ve made a profit you can pay off the loan and move on to your next investment.
Overall, as long as you are confident that you can pay off a hard money loan and have a plan in place to control your budget and finances, it can be a brilliant solution to get a hard money loan, especially if you are starting out as a real estate investor.
If you’re looking for reputable hard money private lenders near you, you can search here.
Sources:
https://www.bloomberg.com/news/articles/2019-06-12/high-interest-lenders-up-40-even-as-home-flipping-trend-weakens
http://www.quoteswise.com/robert-kiyosaki-quotes-6.html
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