How To Use Hard Money Loans for Real Estate Investments

423

Real estate investment has been one of the most consistent performers among all the major investment classes over the last decade, and the national market shows every indication of remaining strong for years to come. Of course, the hot investment sites move even when the market is good overall, which is why investors who depend on financing for their operations often work with California hard money lenders who are capable of operating anywhere in the state. That gives them the freedom to move to the best sites for everything from rehabilitating income properties to flipping houses.

real-estate-investment

Hard Money Loan Basics

Many real estate investors like working with hard money lenders because the structure of the loan helps contain the costs of accessing large amounts of capital for short-term investments. That’s because hard money loans are typically secured with collateral, often another investment with a significant amount of available equity. This provides a level of risk management for lenders that allows them to significantly lower interest rates while also working with clients who have a wider variety of credit scores. Remember, the secret to financing is balancing the three core pillars of collateral, credit score, and cost. Raising one allows the others to be lowered proportionally.

Using Private Money Loans for Real Estate Investments

There are two ways to use short-term bridge loans provided by private lenders for real estate. The first is to cover the cost of the property until it can be resold. Loans for flippers tend to have terms of around a year, but you can find options that range from six months to three years pretty easily. They’re designed to give you time for improvements and marketing, typically charging only interest as monthly payments and structuring a large principal payoff for the end of the term. A similar structure is also available with features designed around investors who need to rehab a troubled property before refinancing it into a longer-term real estate loan.

Why Use Financing?

Even when your cash reserves could cover a cash transaction, it’s often a much better idea to finance property acquisitions. Financing is a risk management strategy that also allows you to increase your investment activity significantly with the right strategy. That makes it easier to reach your goals as an investor. It also gives you the opportunity to put that capital to work in other investment types if you’re looking to diversify. With the lender covering the cost of closing the property and receiving payment from the resale or refinancing at the end of the term, your accounts are simpler and your profits easier to calculate. That, in turn, makes your financial projections more accurate, leading to a better track record across a series of investments.

The organizational and administrative benefits of financing are so strong they rival the risk management and capital extension benefits, so it’s not surprising that this has become the model for investors at all levels. While you might change up the exact structure of your real estate loan as your investment goals change, financing is a fact of life when you make your money in real estate.

Like this post? Let us know!
  • CoolAF (0%)
  • Cool (0%)
  • Whatever (0%)
  • Boring (0%)
  • WTF (0%)
Summary
Title
How To Use Hard Money Loans for Real Estate Investments
Description
Real estate investment has been one of the most consistent performers among all the major investment classes over the last decade, and the national market shows every indication of remaining strong for years to come.
No tags for this post.

More News from Nexter