Hard money loans are loan types offered by private lenders i.e. private companies and individuals to real estate investors. These are short time loans offered to investors whenever they want to secure a certain deal that’s maybe going to expire within a certain period of time. This article centers on hard money loan for rental property.
These loans are backed up by a tangible property or asset as a collateral item. These items can be sold by the lenders and make a profit to repay the loans given out whenever the borrowers default on the loan offered. In this blog article, We are going to look-see at the form of loan i.e. hard money loan for rental property.
Beginner investors can apply to different types of financing such as a family loan or mortgage. Many experts declared that beginners should not go for hard money loans for rental property. However, we are going to show you applicable situations whereby it’s a perfect idea to choose a hard money loan for rental property.
Hard Money Lenders For Rental Properties
The first step to be considered when one is about to ask for a loan has always been to find investors first and connect with them as soon as possible. Connect with all the money lenders in your local area depending on the collateral.
You can go around seeking the local real estate owners for contacts. As soon as you’re in touch with the moneylender. Creating a good relationship with the lender will mean easier paperwork when going by the whole process.
When to Consider Hard Money Loans for Rental Property a Good Idea
Hard money loans may be too expensive for a number of subjects due to several reasons e.g. high-interest rates which can be even twice the rates for mortgages. Therefore, you need to watch out and carefully choose among the most favorable lenders with affordable money rates for the loan.
Below are reasons for hard money loan for rental property:
1. It is time-saving
Since you’ll be directly in touch with one entrusted money lender for rental properties, there would be fewer steps required for the whole process to go through thus saving on a lot of time unlike banks and other official government institutions which require you to be at the offices or headquarters to do huge loan applications.
Private money loan lenders do not consider your loan history with other lenders or credit score when offering you a loan. Therefore, the asset or property under your ownership will be the one to back your loan as collateral.
Moreover, hard money lenders only care about the value of your property. It’s the borrower’s duty to assess the property and prove that it’s worth the amount of cash they need for their next project.
Note that maintaining a good relationship with the lender will lead to a better loan experience since you’ll have all your loans granted on time. This can even lead to a lengthened repayment period.
2. One can borrow more cash
Many investors prefer borrowing hard money loans for a rental property since one can acquire the whole requested price without having to make a down payment.
When borrowing money from traditional lenders i.e. banks and other financial institutions; you will have to pay at least twenty percent of your property price as collateral. Hard money lenders get to offer you up to 100% of your property price, no down payment!
3. Gives investors a starting point
Since hard money loans are not meant for all real-estate investors or just any real estate investment. However, this cash can be used as a perfect starting point for an investor who is looking forward to their next project, or ongoing investment to expand it and even get to improve their portfolio generally.
The first step in real estate investment is always the hardest one to make. This is always due to a lack of experience in the real estate market network i.e making a purchase. The hard money loan for rental property is a type of loan that gives beginner investors to make their first real estate purchase from these hard money lenders.
Mortgages vs Hard Money Loan for Rental Property
Many investors cannot afford to buy rental properties since they are very expensive. Due to this reason, investors get to make an application for a mortgage to get the amount of money they want for the purchase.
Different banks will charge you differently ranging from local to national banks. However, hard money loan lenders charge higher interest rates than banks and other traditional lenders. The mortgage loan applications at banks and other financial institutions basically depend on your credit score to go through.
Therefore, a poor credit score can lead to a rejection of financing. Hard money lenders focus more on the profitability of your property instead.
Moreover, hard money lenders grant the money to investors as soon as in a week while bank loans have to take three to four months to be approved. An investor would know which option to go for depending on how urgently he needs the cash.
It’s recommendable to apply for a hard money loan as an investor especially when you’re in need of urgent cash to strike a super hot deal.
Private Money Lenders vs Hard Money Loan for Rental Property
Private money lenders are primarily your colleagues, friends, family, relatives,or any other individual who’s willing to offer you some cash to boost your real estate investment or fund your rental property.
The key difference between private money lenders and hard money lenders is the absence of financial rental property professionals. Hard money lenders have pro’s in the field who are highly experienced in lending cash to investors who are passionate about investing in real estate financing only.
Hard Money Loan for Rental Property – Conclusion
Make sure you do your research well before seeking a hard money loan for rental property before making a crucial step. Check out your lender’s reputation to prevent falling on to financial predators’ jaws. I hope your investment becomes fruitful.