Reasons For Investing In Real Estate With Hard Money Loans
This BLOG On Reasons For Investing In Real Estate With Hard Money Loans Was Written By Gustan Cho NMLS 873293
There are many benefits for investing in real estate with hard money loans versus traditional bank loans.
- Hard money loans are not just used by novice real estate investors.
- Hard money is a great short term financing tool for both novice and veteran real estate investors.
- When I first started investing in real estate, I used hard money loans even though I could have used commercial financing by many local banks.
- Sometimes is better to pay the higher costs and higher interest rates on hard money loans than getting bank financing especially when it comes to fix and flip properties or investment properties that need rehab which I will explain in detail on this blog.
Speed Is Major Benefit For Investing In Real Estate With Hard Money Loans
Time is money when it comes to real estate investments.
- Real Estate Investors always are on the hunt for the best deals and there are times where investors may run into a situation where the seller of a property needs to liquidate quickly.
- To get bank financing, it takes a minimum of sixty days or more.
- However, one great benefit of hard money financing is that most hard money lenders can fund a deal in a week.
- Most hard money lenders fund deals in two to three weeks.
- Real Estate Investors who are always on the prowl of looking for deals in the marketplace should get pre-approved with several hard money lenders so when they ever run into a situation where they find a desperate seller who needs to liquidate fast, they already have the financing in place and are ready to close on the particular property in less than a week.
Investing In Real Estate With Hard Money Loans Requires Limited Paperwork
As a real estate investor, I have owned, managed, and operated over 3,000 residential housing units and have dealt with both recourse, non-recourse commercial lenders.
- I have owned single family homes, apartment buildings, and apartment complexes. I had no issues with getting approved for financing.
- I had commercial loans ranging from $100,000 to over $30 million.
- However, many times I went straight to my hard money lender because the limited paperwork that was required and because I did not have to deal with bank’s committees and the massive amount of red tape and paperwork banks required.
- Whether an investor is borrowing $100,000 or over ten million, banks and traditional commercial lenders require the same amount of paperwork.
- Hard Money Lending Rates And Costs Are higher:With hard money lenders, they may charge 6% upfront and interest rates may be over 12% but that cost is well worth its weight in gold for real estate investors where they need to move fast.
- By the time I would have gotten bank financing approved and ready to close, I would already have gotten my investment property approved, funded, closed, and had the rehab finished and ready either to sell or ready for end financing.
- Again, Investing In Real Estate With Hard Money Loans offers priceless benefits for the right real estate investor and for the right investment needs.
Investing In Real Estate With Hard Money Loans In The Right Location
Location is key when investing in real estate.
- There are many areas where the neighborhood where the investment property is located is not so safe and once the locals find out that work is being done on a property, watch out.
- Once work is started on an investment property, work needs to be completed as soon as possible.
- There are so many instances where properties gets stripped of copper pipes, HVAC units once installed, and/or just vandalized.
- With bank financing, there are times where delays is common and banks will not release funds until an inspection has been done.
- Hard Money Lenders are more open minded and will release construction funding more generously than banks or commercial lenders.
Investing In Real Estate With Hard Money Loans On Fix And Flip Rehab Properties
Hard money lenders will lend on acquisition and rehab fix and flip properties.
Here is an example on buying a fix and fix rehab property:
- Lets assume it costs $100,000 to purchase a fix and flip property and cost another $100,000 to rehab it.
- We have a special fix and flip rehab loan program where the investor needs to put 15% down payment on the acquisition and 10% down payment on the rehab of the project.
- On this case, the real estate investor needs to come up with $25,000 and we will lend on the balance of the $200,000; $100,000 acquisition and $100,000 on the rehab for this $200,000 real estate project.
- On most cases, the amount of the down payment and rehab financing depends on the borrower’s credit scores, type of property, location, and type of rehab.
Benefits Of Tax Deductions On Real Estate Investments
Government encourages real estate development for housing units in the United States.
- If real estate investors would not provide housing, then the government would need to blend into the role of becoming real estate developers.
- This is why government agencies like HUD, VA, USDA guarantee private loans to lenders so they can lend to home buyers with little down payment, less than perfect credit, and higher debt to income ratios.
- To reward housing developers, the federal government offers many tax benefits to real estate developers and investors by allowing them to write off significant tax deductions from the income taxes.
- Investors can write off depreciation on a property and can depreciate a residential property over 27 years and commercial properties over 39.5 years.
The Internal Revenue Service views investments in real estate as a business so investors get the privilege of claiming necessary and ordinary tax deductions that normal business owner take advantage of such as the following;
- Mortgage Interest
- Maintenance Expenses
- Other expenses and one time losses
- Real Estate Investors should consult with their CPA or licensed tax advisors
Qualifying For Hard Money Loans
Every hard money borrower is qualified on a case by case basis.
- Hard Money Lenders do not have strict mortgage guidelines like residential lenders and banks.
- Most hard money lenders do not require income docs and/or tax returns but they do look at borrower’s credit scores and payment history.
- Credit scores and a strong credit payment history shows the overall credit profile and character of a borrower.
- Hard money borrowers with 500 FICO credit scores can qualify for hard money loans but chances are interest rates and down payment requirements will be higher on a low credit profile borrower than a triple AAA rated borrower.
- Hard money lenders are more interested on the property than the borrower.
- Almost everyone with a large down payment can qualify for hard money loans.
- The key is the terms and rates on bad credit hard money borrowers versus good credit borrowers.
- Hard money loans are short term financing and lenders will want to know the exit strategy of the real estate investor.
- Is the investor going to sell the property after the property has been stabilized?
- Is the real estate investor going to keep the property by refinancing it after the property has been stabilized?
Real Estate Investors who are interested in getting qualified for hard money loans, contact Gustan Cho at 800-900-8569 or text Gustan at 262-716-8151 for faster response or email us at firstname.lastname@example.org. We are available 7 days a week, evenings, weekends, and holidays to take calls and answer questions on hard money financing.