FUNDING: AVOIDING FRAUD
NO NEED FOR PERFECT CREDIT. With hard money loans, the property itself acts as collateral, so lenders are less concerned about the borrower’s credit history. This benefits investors who might not have excellent credit but still want to invest in real estate. PROPERTY FLIPPING. Many investors use hard money loans for “fix-and-flip” projects: They buy a property, renovate it, and sell it quickly for a profit. Hard money loans provide the necessary funds for purchasing and renovating the property, allowing investors to turn a profit in a short amount of time. BRIDGE FINANCING. Sometimes, investors need temporary financing to bridge the gap between buying a property and securing long-term financing. Hard money loans like bridge loans can fill this gap, allowing investors to acquire properties while they arrange for more permanent financing. Overall, real estate investors use hard money loans because they offer speed, flexibility, and accessibility.
RISKS ASSOCIATED WITH HARD MONEY LOANS
Hard money loans do come with risks: HIGH INTEREST RATES. Hard money loans usually have higher interest rates, meaning investors pay more in interest over the life of the loan, cutting into potential profits. SHORT LOAN TERMS. Hard money loans usually have shorter terms, often ranging from six months to a few years. Investors must be confident they can repay the loan within this timeframe; otherwise, they risk facing steep penalties or foreclosure. ASSET-BASED LENDING. Hard money lenders base their decisions primarily on the value of the property being used as collateral rather than on the borrower’s
20 | think realty magazine :: july - august 2024
Made with FlippingBook Online newsletter