Funding Your Deals With Hard Money Loans
As a real estate investor you may have strategies in place that make it so you never have to go to the bank in order to purchase a property. You may assume loans or wholesale houses for profits. You may even pay cash. If you come across a property that is just too good to pass by and you need to fund it fast, then you may need to use hard money.
Hard money loans are also known as private loans. They are essentially a cash transaction that is funded by private investors (hard money lenders). There are many reasons why you can benefit from using these loans and it can be a lifesaver. First of all, these lenders lend specifically on the deal, not on you. They do not check your credit and they even lend you the money for your renovations. The best part is they can typically close in one week!
Here is how a typical hard money loan is structured. The lender will order an appraisal of the house you intend to buy and they will request two values. They want to know the as-is value as well as the after-repaired value (ARV). They will loan you a percentage of the ARV which is how they are able to reimburse you for repairs. For example, the as-is value is $100,000 and the after-repaired value is $200,000. If they loan you 65 % of the ARV then they will loan you up to $130,000 dollars. This leaves you $30,000 to put towards repairs on the house.
The terms of their loans are typically 4 to 5 points and the monthly payments are approximately 13 to 15 percent interest. These terms are going to be less desirable than your average mortgage lender's terms however it is an even trade off when you think of all of the benefits these private loans have to offer. Think of a private money lender as your partner. If you have found a great deal and need to close fast, these lenders are worth every penny.
I can give you a couple big reasons as to why I would use a hard money loan. I have used several of these in the past. The first large scale rehab project I ever performed required nearly forty thousand dollars in repairs and I did not have that much money at my disposal. If I wanted the deal I was going to have to act fast and have cash available. This loan gave me just that. On this deal I managed to earn a profit of over forty thousand dollars. Wasn't that worth making a few big mortgage payments? Another reason you may want to use these loans is if you are a wholesaler. Maybe your buyer is not ready to close yet however your seller is. If you need to close and hold a property for a short period of time, maybe even just for a week, these loans can be very helpful.
Brian Ducharme is a full time real estate investor. He started investing in real estate at the young age of eighteen years old and has currently been investing in real estate for five years. He is an experienced investor within all aspects of real estate including rehabs, short sales, "subject-to", and wholesales. For more information you can view his website at http://www.learntofliprealestate.com and you can receive a free miniature investing e-course just for visiting!
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