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Reasons You Should Get Hard Money Despite

Numerous financial specialists have been demoralized by the high premium forced by hard cash banks. Really, they were presumably “killed” by absence of data.

Contrasted with customary loan specialists, hard cash moneylenders force a multiplied financing cost. That is definitely not what borrowers’ ears were longing to hear, in spite of the fact that the individuals who keep on investing in land utilizing this sort of financing will say something else. They don’t utilize a high loan fee just to make life more troublesome for land financial specialists. To comprehend why they do this, it is imperative to realize that such banks hazard getting misfortunes at whatever point they support recoveries or different properties.

Bank and other traditional lenders carefully assess a person and his capability to repay the money whenever a borrower applies for a loan. They check his credit score or report and require the borrower to present numerous documents including a proof of income. This process is tedious and time-consuming, leaving the borrower to wait for around 30 days before he knows if his application is approved or rejected. This is to ensure that the loan will be repaid.

Hard money lenders, though, are at a bigger risk of making losses. They lend money even to those who do not have a good credit standing. That’s because they look at what a borrower is presenting rather than whether he has the ability to pay the loan with his current income. They assess whether the fixer upper a borrower will flip will actually result in something positive. They will decide to fund your rehab project if they see that you will be able to pay them once the property is sold.

They also compute how much money you will receive through the ARV, or after repair value of the fixer upper. Usually, the borrower gets around 70% of the ARV – an amount enough to purchase the fixer upper and in many cases, even fund the repairs. That’s buying, repairing, and selling a property without spending a penny.

Experts say that that is the essence of getting hard money financing: you get to flip a house and earn from it fast without spending your own money. They call this OPM, or investing using other people’s money. While interest rates in hard money financing may rise to around 18%, would you still care about it if you will get a 75% rate of return from the project you will get? That 18% will be dwarfed by the profit you will get from a project you might miss if you rely on tradition funding.

Let’s say you opt for banks and other traditional lenders that offer a 9% interest on the loan. With the competition among rehabbers heating up amid the recession, another rehabber could snatch the fixer upper you want to flip while you are waiting for the processing of your loan. Take note, that is processing and not approval. There is no guarantee that you will get the money after you wait for 30 days or so. But in hard money financing, loans are approved or rejected in just days, allowing you to seek money through other channels in case you are denied, without compromising the deal you want to close.