5 Things Property Investors Should Know About Hard Money Loans
Hard money loans have largely supported real estate investing since the start of the housing crash in 2008. When the crash hit, banks suddenly tightened their purse strings. They made it harder for investors to buy property using loans. If not for private lenders like Salt Lake City’s Actium Partners, many a property investor would have had a tough time.
From Salt Lake City to St. Louis, hard money loans offer property investors the fast cash they need to pursue strategic growth. Hard money loans provide cash to purchase new properties, expand portfolios, develop land, and so forth. They are vital tools for house flippers who rely on the short-term financing to fuel their businesses.
As a property investor, here are five things you should know about hard money loans from private lenders:
1. Higher Rates Are Not Prohibitive
While it is true that hard money loans can cost more than traditional bank loans, their higher rates are not necessarily prohibitive to making money. First and foremost, rate differences are not all that extreme anyway. But what the investor does pay in higher rates is made up for by faster approval times. An investor finishing off a job with a private loan in the same time it takes just to acquire a bank loan starts generating profits sooner.
2. Hard Money is Asset-Based
Private lenders like Actium Partners lend hard money based on assets. They look at what the investor has to offer in terms of collateral before making a decision. By contrast, banks pay more attention to the individual borrower. This is a significant difference. Asset-based lending is such that borrowers do not have to have stellar credit. Good credit certainly helps, but asset-based lenders are willing to take more risks because their investments are protected by collateral.
3. Approvals Tend to Be Faster
As hard money loans are asset-based, the application and approval processes tend to be a lot faster with private lenders. Where a bank can take up to 60 days to close a real estate loan, private lenders can do it in a fraction of the time. Some private lenders are so fast that borrowers can get approved, receive their cash, and complete their projects in less time than it would take to be approved by a bank.
4. Documentation Requirements Are Less
Hard money lenders absolutely require documentation from applicants. Yet their documentation requirements are considerably less compared to banks. What they are looking for is verification that the collateral being offered is sufficient to justify the amount being borrowed. In this regard, appraisals are the most important form of documentation hard money lenders look for.
5. Hard Money Loans Are Regulated
There is a persistent myth that suggests hard money lenders operate outside the boundaries of state and federal regulation. It is not true. All hard money loans are regulated at the state level. And all 50 states have appropriate regulations in place.
To protect their own interests, investors should retain attorneys capable of reviewing and advising on hard money contracts. They should also do their own diligence to make sure they can repay what is borrowed, as private lenders still have the legal right to foreclose in the event of default.
If it were not for hard money loans, real estate investing could have taken a quite different turn following the housing crash. But because private lenders continued supporting real estate investors, today’s market is as robust and profitable as it has ever been. Hard money lenders have truly been an asset to real estate investors from coast-to-coast.