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Benefits of Hard Money Loans for Real Estate Investors

By Mountain Publishing @mountainpublish

There are many ways to invest in real estate, so there are also different funding options for mortgages as well. Real estate investors often go through an extensive process of searching for the perfect investment property. This takes a lot of time and effort, but locating the right property is still just the first step in a longer process. The financing issue is central to the ability of the investor to achieve the desired rate of return. This means that the funding source and the terms of the agreement will be critical in determining the final level of profitability. Although there are ways to earn passive income from real estate investments, this particular method involves direct ownership, so the terms are different.

Financing for Real Estate

There are different ways to finance a real estate investment property. Traditional lending institutions are the most visible, but there are many drawbacks. They typically require the investor to jump through a series of hoops just to qualify for financing, for example. In addition, the terms of the loan are completely determined by the lender, and this leaves little room for customization. Investing in real estate can be tricky, and the mortgage loan will need to be acquired within a reasonable amount of time in order for it to make fiscal sense. Most banks will not offer terms that are favorable to the real estate investor, so other options for financing should also be explored. One of the best options for people in this situation is called a hard money loan.

Benefits of Hard Money Loans

According to Delancey Street, hard money loans are not designed to solve all of the real estate investor’s problems, but they can help in critical areas. For example, it is easier to get pre-approved for this type of loan from a hard money lender than it is to get approved for a similar mortgage loan from a bank or even a credit union. The terms of the loan are also subject to some level of negotiation, and this can make all the difference to the borrower. This loan will also relieve the investor of the need to come up with a large down payment on the property, which can drain the cash reserves. Hard money loans will typically originate from a private lender, but they can also come from a group of lenders as well. The terms of the loan will be decided through a process that is relatively flexible when compared with traditional financing institutions.

Financing from traditional lenders will require the borrower to accept the terms of the loan without any ability to negotiate. This includes key items like the interest rate, payment terms and loan balance limit. However, every lender will also seek ways to reduce the level of risk involved, and this is where the borrower can make a case for the transaction. For example, if the investor has a history of turning around properties in similar condition for a profit, the lending group might be convinced that the project is worth the risk. It is unlikely that any real estate investor will get such a hearing from a bank. Hard money loans can solve certain specific problems, and they provide many benefits to borrowers who are fully prepared to invest in a way that is likely to turn a profit.


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