The wonderful thing about investing in real estate is that it always has value (barring extreme circumstances like natural disasters). Market prices may fluctuate, but investors willing to ride out any downturn will almost always come out ahead, and the fact that there’s a tangible asset at the core of the investment certainly doesn’t hurt.
Of course, real estate can also be used as a means of generating passive income. Rental properties are a great way for investors to see consistent income from property purchases.
The only problem for real estate professionals seeking investment properties is that it can sometimes be difficult to obtain traditional lending. Whether you’re interested in buying into new construction, flipping homes, or owning and operating commercial properties, you should know that there is an alternative: hard money lending. Here’s a crash course in how you can take advantage of this beneficial option.
How Does it Differ from Traditional Lending?
When you apply for a traditional loan to purchase real estate, lenders will run your credit score. If your credit rating is low, you may be denied a loan or charged exorbitant interest rates, even if you have a lot of collateral or cash for down payment.
The same is not true of hard money lending. Because the funding comes from private investors rather than a lending institution, your credit score is less important than the collateral you’re prepared to provide.
Hard money lenders are more interested in your ability to pay off debt, as well as your plan for return on investment. In other words, it’s a pretty straightforward business proposition. Borrowing from hard money lenders is more like taking a business loan than a mortgage loan.
Also different is the way money is loaned and the associated interest rates involved. Hard money lenders tend to offer about two-thirds of the current value of any property. This is known as the loan to value (LTV) ratio.
In addition, you could end up paying higher interest rates than you would for traditional loans. This is to compensate for the additional risk the lender takes on. You can get hard money loans with poor credit, but there’s always a cost.
Properties and Deals that Apply
Hard money lending is particular to the real estate market, which makes it an ideal choice for real estate professionals seeking loans for investment properties. Since loans are based on ability to repay, having a comprehensive and ultimately lucrative plan in place for your property purchase can be a major boon.
What types of property deals apply? Purchasing land for commercial purposes, such as building an apartment complex or a shopping center, opportunities to flip houses, or buying in early on new construction projects to see a quick return upon completion would all benefit from hard money lending for your property purchase.
Who Can Benefit?
Anyone interested in seeing a return on investment from a property purchase could benefit from seeking hard money lending Texas to California to New York. With a solid plan for development and a fair amount of capital up front, there’s no reason not to consider private investments from hard money lenders to make your real estate dreams a reality.