Many of the “real estate experts” stress the importance of using other people’s money (OPM). These “experts” say that it’s better to invest with other peoples money because then you get a greater return on your investment. In reality, if your investment really is great then you will be better off using your own money, but most of us don’t have hundreds of thousands of cash lying around. But that’s a subject for another day, this article is focused on hard money.
Privately funded loans with high interest rates and fees intended for temporary financing are known as hard money loans. These loans are “hard” because they have very strict terms and expensive fees. It’s not cheap to get hard money loans. They typically have an upfront origination fee of three to four points, plus 12-18% interest.
One of the major differences with hard money lending, and other types of financing is the criteria used to determine finance risk. The focus on traditional mortgage loans is the borrower. Traditional lenders only approve borrowers with good credit, low debt, and consistent income. The focus of Arizona hard money lenders is the property’s lending worthiness or value. If the value of the property is substanitally more than the amount lent, a hard money loan will usually fianance. If the borrower happens to default, the hard money lender doesn’t have a problem foreclosing on a property with substantial equity.
Despite the risk, hard money loans can be very useful, especially for real estate investors. Many foreclosure auction and other deals need financing very fast. They must come up with money fast. A good California hard money loan can be obtained within just a few days. If the property is a good investment, and there’s a solid exit strategy, then even though the borrowing cost may be high, the profit made is worth the cost. With real estate investments it’s not how much money is spent, but what the net profit is.
If a real estate invester borrowed 100 Grand, and sold it three months later for 140 Grand. If up front they paid three points that would be $3,000, plus $6,000 in monthly interest. They may have paid the hard money lender Nine Thousand Dollars, but they would have netted more than Thirty Thousand..
Smart real estate investors who use Virginia hard money loans wisely can make large profits, but using other people’s money is not always the most profitable method for real estate investing.
