Should You Rely On Hard Money To Finance Real Estate Investing Deals?

One of the most popular sources of financing for real estate investing deals is hard money. Until recently, hard money used to be quite easy to get as long as your property met the lender's underwriting requirements.

Recently most hard money lenders have tightened their lending requirements, but these loans are still much more easily available than regular loans.

Should hard money be a main source of funding for your real estate investing deals?

What is hard money?
Hard money lenders use the property as security to lend money. Most hard money lenders do not need the borrower's credit to lend money, but depend on the security only.

Even though recently a lot of hard money lenders are including some credit rating in their under-writing procedures, they still put less emphasis on credit of the borrower. Most hard money lenders will need to see at least 40% equity on the collateral property.

Hard money can also be available within just a few days if necessary.

Therefore, interest rates for hard money are usually higher than traditional mortgages. Most hard money loans charge at least 18% interest plus points.

The payments are usually interest only, meaning that the amount you owe remains the same. The lifetime of a hard money loan is rarely more than 6 months.

When buying a rehab property, it is unlikely to get a traditional loan. Hard money would be perfect for such a deal.

After you fix it up, you can then either sell it or rent it out, but your exit strategy must include paying off the hard money in a few months.

In the current market where it is getting harder and harder to sell a house, it might be a risky venture to hope you will sell the property in good time to pay off the hard money loan.

Every month you keep your property under a hard money loan costs you money in high interest payments and this could eat up all your profits.

A hard money loan is not feasible for buying properties on terms.

You will need to identify a reliable hard money lender in your area that specializes in funding deals like yours.

A relationship with a good hard money lender would serve your real estate investing business well.

You must demonstrate that your exit strategy is viable. A hard money lender's worst nightmare is an inventory of property sitting in their balance sheets tying up their cash.

At the very least, they will need to know that they can get their investment back in a few months.

Present as much helpful information as possible, such as similar deals you may have done previously, potential buyers, rehab crew, your experience as an investor, etc. This will cement the deal and make them more comfortable to lend you money.

Ultimately, your need to use hard money must be determined by the property and an exit strategy that can be realized in as little as 3 months.

No matter what type of deals you have, selling your houses fast is important to the success of your real estate investing business. Find out how an interactive real estate investor website that also builds your buyers list can help you sell your houses fast even in a depressed real estate market.