Buying Rental Properties With Hard Money Loans

This BLOG On Buying Rental Properties With Hard Money Loans Was Written By Gustan Cho NMLS 873293

Buying Rental Properties With Hard Money Loans benefits countless of real estate investors. Many investors who specialize in fix and flip housing rely on hard money financing due to the limited paperwork required and the fast closing and funding. Buying Rental Properties With Hard Money Loans by real estate investors as a short term bridge financing tool enables them to be able to fund real estate projects quickly with a fraction of the paperwork required by banks and traditional commercial lenders.

What Is Hard Money?

Hard Money Financing is a short term financing option used by real estate investors to fund their real estate projects. Terms generally is for a minimum of 4 months to no more than two years. Interest Rates On Hard Money Loans varies between 7% to as high as 18% and borrowers are charged anywhere upfront points of 3% to as high as 18%.  The amount of points charged and interest rates depends on the risk of the project and other variables. Hard and private money lenders are more concerned about the property than the borrower when underwriting the loan.

Here is how hard money is used for by many investors:

  • Hard Money is not just used by investors with bad credit but investors who qualify for bank financing also use it as well.
  • Hard money is a popular loan program for fix and flip rehab projects.
  • Hard Money Lenders will finance the acquisition PLUS construction cost of the property.
  • Used for buying vacant rental or rental properties that is not stabilized and need to be rehabbed until it is ready for long term financing.
  • Buying foreclosures and properties from auctions.
  • Properties that are not habitable due to needing repairs and cannot be financed by traditional banks and lenders.
  • Investors needing quick funding for real estate purchases.
  • Investors with equity in their properties who are facing foreclosure and need fast funding to save their property.

Hard Money Loans are generally more expensive than bank financing but the most real estate investors find hard money well worth its extra costs due to the quick turnaround time and limited amount of paperwork required. There are many instances where hard money can be closed in a week or less. Creative mortgage strategies can in Buying Rental Properties With Hard Money Loans with zero money down by refinancing investor’s other properties.

Benefits Of Buying Rental Properties With Hard Money Loans Versus Traditional Loans

Hard Money Financing is not just for real estate investors with bad credit or no income verification. Buying Rental Properties With Hard Money Loans is often used by many established investors with blue chip real estate portfolios and triple A plus credit due the following reasons:

  • Long term loans normally have high pre-payment penalties where if borrowers pay off a loan early, the lender will charge them a percentage of the loan balance.
  • Fast closing than traditional lenders.
  • Hard Money Financing closes in less than 4 weeks (2 to 3 weeks is common) versus over 60 to 90 days with banks and traditional lenders.
  • Hard and Private Money Lenders also will fund the construction/rehab of the property where banks and traditional lenders will not.
  • This can be quite costly. Some lenders have pre-payment penalties of 5% the first year, 4% the second year, and 3% the third year.
  • Many investors buying investment properties do not want to go with long term financing until the property has been stabilized.
  • Investors may purchase a 10 unit apartment building where only 5 out of the 10 units are rented and the tenants are only paying $500 per month where market rents after basic rehab are $1,000 per month. 
  • Buying Rental Properties With Hard Money Loans gives time for real estate investors to rehab the 10 apartments, rent it to tenants for market rent which is $1,000 per month, then go for end long term financing at a much lower interest rate and pay off the hard money lender.

Difference Between Hard Money Versus Private Money Lenders

The main difference between private and hard money is the private money lender is a private individual and/or group of private people lending the money.

  • Most private lenders normally do not deal with the actual borrower but will have a business agreement with a commercial mortgage broker.
  • The mortgage broker will be the middle man between private lender and borrower and make sure both sides are protected.
  • In lieu of the mortgage broker’s services, the broker get a fraction of the upfront points as their commission.
  • Hard money lenders are companies in business to lend short term loans based on the property and not too much emphasis on the borrower.

Here is the reason why a person become a private money lender

  • When returns on other types of investments are very low, people with liquid cash look at alternative types of investments such as private money lending.
  • Interest on Certificate of Deposits, even long term CD, is at less than 1.0% where investors will take a loss when inflation is taken into the equation.
  • Higher net worth individuals are always looking for secured conservative, safe investment opportunities.
  • Lending to real estate investors who have skin in the game (large down payment) is a secured safe investment for higher net worth individuals because their investment is secured by their borrower’s down payment.
  • If private money borrower defaults on their obligations, private money lender forecloses. 
  • The foreclosure process on investment properties is much easier and quicker than owner occupant primary homes.
  • Most private money lenders prefer to lend money to people they know and trust.
  • Hard money lenders are companies that have their own lending guidelines and matrix and lend money based on assets and not the individual.

How Can I Qualify For Hard Money Loans?

Real Estate Investors who have the down payment on a investment property purchase can qualify for hard money loans. The hard money loan process is much easier than the residential mortgage process. Hard money lenders are more concerned about underwriting the property and not the borrower. The borrowers credit, credit scores, and income does not matter with hard money lenders. Investors who need to qualify for hard money loans for investment properties please contact Gustan Cho Associates at 800-900-8569 or text Gustan on his cell at 262-716-8151 or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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