Why Hard Money Loans Just Make Sense For Investors

Why Hard Money Loans Just Make Sense For Investors

Over the past few years, hard money loans have become extremely popular in the eyes of investors. As the process of getting a traditional loan has become more difficult, more hard money lenders have entered into the mix. Not only has this become a viable option for many investors, but it is also the preferred method. The speed and efficiency for which hard money is utilized makes any fees and increased interest rates well worth it. Even if you traditionally finance your properties with bank loans or have other hard money lenders lined up, you can never have enough options at your disposal. If you are on the fence as to whether a hard money loan makes sense for you, here are four reasons why you should consider them:

1. No mortgage red tape: Getting a loan for an investment property is much more difficult than it was in the past. The first issue that most real estate investors run into is with verifying the income they make. Even if verifying is not an issue, most loan programs only accept 75 percent of all rental income received. This greatly reduces a portion of the total income, making the total debt-to-income ratio higher. If this number exceeds roughly 45 percent, the loan will not be approved. This is only one area of the mortgage approval process. Closing a loan in today’s marketplace is filled with many roadblocks. If it’s not the income it could be the appraisal, insurance or one of the many other areas that could cause an approval to go south. You can spend weeks on your loan, only to find out there is a problem with a large deposit you made months ago. The difficult loan process is now the norm rather than the exception. Hard money loans avoid this step altogether, and get you into many more deals throughout the year.

2. Speed: Once you establish a relationship with a hard money lender and have access to capital, your business will completely change. The biggest difference is with the speed you can now close deals. Most typical loan approvals take anywhere from 30 to 45 days. With the benefit of a cash offer, you can close as quickly as the seller will accept. Closing quickly is not only more attractive for the seller, but it will help you turn more deals over throughout the course of the year. In the time you spend waiting for your loan to be approved, you may be able to close two hard money deals during that same time. This allows you to turn more deals over throughout the year. With each deal you close, you can gain valuable contacts to further grow your business. The quicker you can close, the higher the chance of your offer getting accepted.

3. Convenience: For some investors, going through the mortgage process is a necessary evil. Instead of going the hard money route, they like want to save money on fees, expenses and take the lowest possible interest rate. There is nothing wrong with watching the bottom line, but there is something to be said for the convenience of being able to close with cash. Having to supply a lender with bank statements, income documentation, tax returns and leases can become overbearing and consume your business. Just when you think you are done, another set of items is often needed. You are at the mercy of the lender and need to stay on top of everything they ask for if you want to ensure approval. The alternative is being able to close within ten days on any offer you get accepted. What you lose in fees and expenses you gain in overall volume and convenience. Instead of focusing on getting your loan approved, you can think about other facets of your business.

4. Increased Volume: Most investors have limited funds at their disposal. Instead of taking on any attractive deal, they are forced to wait until after they are finished with the one they are currently working on. A typical rehab from acquisition to sale takes several months. This severely limits the total number of deals they can close throughout the year. Working with hard money allows you to pounce on any good deal that comes your way, regardless of any other projects you may be working on. Cash deals also have more power behind them. Sellers that want to close quickly will often opt for a cash offer, even at a reduced price, over one with loan financing. Real estate agents, wholesalers and even fellow investors will notice how quickly you can close. This reputation may give you the inside track on future deals you may have never even thought of.

Things in the real estate world often change at the drop of a hat. You may not think you will ever need a hard money loan until that one deal comes along where it would be a perfect fit. This is why it is best to have as many options as possible in place. You never want to miss a deal because you couldn’t secure money. Most areas will have at least a handful of hard money options that you can reach out to. Find one that you are comfortable with. You may only work with them once a year, but that deal could be the home run you have been waiting for.

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