Real estate investment; especially foreclosure investing is witnessing a sharp rise in the American market. 3% of Americans now refer to themselves as real estate investors. Although foreclosure investing is a hot favorite among real estate investors, financing still remains a catch.
If you are into real estate investment, then you must be aware of the popularity of private money loans, otherwise known as hard money loans or bridge money. Private money loans are easy to attain, but are expensive. Thus, when and why should an investor resort to these expensive hard money loans?
Why "Hard" on the pocket?
Savvy investors are aggressively investing in real estate; as it is a buyer's market. However, funding multiple properties simultaneously can be challenging and taxing. To make the best of the available investment opportunity, real estate investors resort to loans. However, why do they choose the expensive hard money loans over others?
Hard money loans are the ideal solution for acquiring loans devoid of these barriers.
Hard Money Loans
Hard money lenders provide loans based on the ARV (After Repair Value) of the property. The property in question acts as the collateral against the loan; hard money loans are not provided on the basis of credit scores or income statements. Hard money lenders provide loans up to the extent of 70-75% of the ARV of the property. So if the borrower defaults on hos payment, he can recover the amount from the property's sale. Thus, hard money lenders assess and evaluate the property prior to sanctioning the loan.
For instance: If the property's after repair value is $150,000 and it is now available for 100,000 and the repairs cost is estimated at $25,000, the amount required by the borrower would be $120,000. The LTV (loan-to-value) ratio would then be: 80%, which may not be a feasible ratio for lenders. In such cases, the investor would need personal finance of about 5-10%.
Some hard money lenders cover the purchase price and repairs cost in the loan; while some of them may include only a part of the repairs cost. However, it is still better than traditional lenders as they do not include the repairs cost to any extent.
Loan processing time is always much longer in conventional loans. Hard money loans are processed quickly; the time span is within 48 hours to a week. Traditional lenders take 30-45 days to process the loan.
Acquiring traditional loans is bureaucratic and requires a whole lot of documentation. It is easy to acquire hard money loans, as they only assess the property in question.
Although it is expensive, a hard money loan is the best option for real estate investors. Timely availability of finance can make or break a deal in foreclosure investing. In such situation, who can be better than a hard money lender for investors to realize their dreams?
If you are into real estate investment, then you must be aware of the popularity of private money loans, otherwise known as hard money loans or bridge money. Private money loans are easy to attain, but are expensive. Thus, when and why should an investor resort to these expensive hard money loans?
Why "Hard" on the pocket?
Savvy investors are aggressively investing in real estate; as it is a buyer's market. However, funding multiple properties simultaneously can be challenging and taxing. To make the best of the available investment opportunity, real estate investors resort to loans. However, why do they choose the expensive hard money loans over others?
- New comers may not have the credit or capital for real estate investment, when compared to the established players.
- Conventional lenders and banks often refuse to provide loans for uninhabitable properties, which demand repairs and rehab.
- The FHA guidelines limit investors from flipping houses.
Hard Money Loans
Hard money lenders provide loans based on the ARV (After Repair Value) of the property. The property in question acts as the collateral against the loan; hard money loans are not provided on the basis of credit scores or income statements. Hard money lenders provide loans up to the extent of 70-75% of the ARV of the property. So if the borrower defaults on hos payment, he can recover the amount from the property's sale. Thus, hard money lenders assess and evaluate the property prior to sanctioning the loan.
For instance: If the property's after repair value is $150,000 and it is now available for 100,000 and the repairs cost is estimated at $25,000, the amount required by the borrower would be $120,000. The LTV (loan-to-value) ratio would then be: 80%, which may not be a feasible ratio for lenders. In such cases, the investor would need personal finance of about 5-10%.
Some hard money lenders cover the purchase price and repairs cost in the loan; while some of them may include only a part of the repairs cost. However, it is still better than traditional lenders as they do not include the repairs cost to any extent.
Loan processing time is always much longer in conventional loans. Hard money loans are processed quickly; the time span is within 48 hours to a week. Traditional lenders take 30-45 days to process the loan.
Acquiring traditional loans is bureaucratic and requires a whole lot of documentation. It is easy to acquire hard money loans, as they only assess the property in question.
Although it is expensive, a hard money loan is the best option for real estate investors. Timely availability of finance can make or break a deal in foreclosure investing. In such situation, who can be better than a hard money lender for investors to realize their dreams?
No comments:
Post a Comment