In the complex world of real estate investment, there are often terms that beginning investors are not familiar with. Hard Money is an integral part of many commercial real estate projects and understanding how it fits into the overall financing of real estate is critical.
Hard Money is a source of funding that falls outside of the traditional methods of receiving loans for commercial real estate investors. In many cases, the time that is required and many strict guidelines for acceptance prevent borrowers from being able to have access to traditional funds. Banks and other lending agencies can take weeks or months to come through with a loan and some borrowers need access to fund much more quickly. These loans can often be accessed in a matter of days, as opposed to the much longer waiting period for a traditional loan.
This is where hard money steps in. These loans are often from individuals or smaller groups, which gives them a great deal of flexibility in both terms and security. These loans do not depend on the credit worthiness of the borrower, instead these loans are asset-based and are often secured by the value of the property that is being purchased with the loan. In some cases, the hard money loan will be secured with assets that the borrower already has on hand, such as other properties.
Typically, hard money loans are for very short terms and are at a higher interest rate than a traditional longer-term loan. It is also common for a borrower to be granted terms that allow them to only pay the interest during the term of the loan and then pay the balance of the loan off in one balloon payment at the end of the term. This method allows the borrower to utilize the entire amount of the loan for improvements, instead of having to worry about monthly payments that include both principle and interest.
Another benefit of this type of loan is that borrowers usually have access to the entire amount required, whereas in a traditional loan, the borrower will have to put down a certain amount to secure the remainder of the loan. For borrowers who have little cash on hand, this can often be a lifesaver and might mean the difference between a successful development or an absolute bust.
What type of investor would benefit the most from hard money?
Hard money loans are not for everyone. Sure, they provide easy access to funding and cuts through a lot of the bureaucracy of traditional lenders, but not everyone is cut out for it. Those who are planning on improving and quickly selling a property will find a great deal of value in a hard money loan, as they will essentially be making a profit off of other people’s money. If a developer can improve a property very quickly, this is an excellent use of the loan, but it is dangerous, as the property might not have sold by the time the hard money loan comes due.
Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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