Benefits of using private money loans the right way

 

Hard money loans are an often overlooked method to funding your first or next investment. Since they’re backed by collateral, hard money loans are usually backed by the properties they are funding, instead of credit or financial history.

 

How to use hard money the right way

There are a few rules of thumb to keep in mind when you are getting ready to use a hard money loan.

 

First, it is important to have a clear plan for how you intend to use the loan. Knowing how you intend to use the loan will also help you predict how much income you expect to generate from your project, whether that’s a business or investment property.

 

This brings us to our second important point: you also need a plan for how you intend to pay the loan back. Knowing your expected ROI, or return on investment, will help you determine how big of a loan you should apply for and how quickly you will be able to pay off the loan.

The best benefits

Once you have a plan for how you will use your loan and get it paid, you will be able to enjoy the many benefits of hard money. Here are a few of our favorites.

 

• Approval is fast

One of the biggest hassles in applying for a traditional loan is the wait time. Traditional loans can take anywhere from 30 to 60 days to be approved before you can put them to use. Hard money loans are different. A hard money loan can be approved in as little as a week. This proves to be a huge advantage when you need to apply funds quickly, whether in a competitive real estate market or when seeking to accelerate business growth.

• Your loan period is short

No one wants to be tied to a loan for long. Traditional loans for property typically last in periods of 3, 7 and 10 years. If you are financing a business or investment, you shouldn’t need to be locked into a loan period that your revenue can cover. Hard loan periods typically last only a few years making them a great option for high growth businesses and real estate investments. 

• Fewer Requirements

Hard money lenders are typically private individuals or businesses offering loans, so they are free from the requirements of banks. They will base your loan on a few factors: the value of the property or collateral and a minimum down payment, also known as equity. Because hard money lenders are running their own business, they can decide how much they are willing to loan you without extensive credit checks or fees.

• With hard money you can close faster

Since hard money loans take only a few days to weeks instead of months (like their traditional counterparts) you can close on property much faster. 

• You can get ahead in competitive real estate markets

The real estate market is currently a seller’s market, so investors and buyers interested in breaking into real estate should be prepared to act quickly. One way of gaining a competitive edge in a fast paced market is through the hard money loan. Sellers like to see buyers who can get them the funds quickly. Paying with cash or with hard money.

• You have access to off-market properties

One of the lesser discussed benefits of a hard money loan is that it can give you access to off-market properties. Off-market properties are properties that are for sale but are not officially on the market and are typically sold by wholesalers looking to sell to investors within a matter of days. Hard money loans, which are approved quickly, can help you secure these properties in a short time frame with wholesalers who want to move fast.

• Hard money is accessible to diverse income backgrounds

Hard money loans are more accessible to people with diverse income backgrounds or a short credit history. Because hard money loans are based on collateral–the value of the property–lenders don’t need to rely on credit when drawing up the loan. That being said, they may take measures to protect themselves such as a higher interest rate or fees (although usually these are accounted for in the loan). They also will probably offer a loan-to-value ratio that is less than the value of the property (in case the value goes down or is miscalculated).

• You can use it to grow your business

Hard money can be used for more than financing property. Hard money can also be used to grow your business quickly. You can use your hard money loan to cover costs such as repairs, professional development, and new equipment. This is a huge advantage when you need to meet growing business needs but don’t want to wait on securing a traditional loan. Just make sure that you account for this in your business’s budget.