Hard money lender in the past few years, have earned the reputation of being the last resort of people needing money. This is primarily because these lenders use higher interest rates compared to banks. Real estate investing, however, changed all that. Real estate investors who are cashing in on the relatively low prices of properties in today’s market are using hard money and they prefer it over conventional loans.
Among real estate investors who benefit the most from hard money lenders are rehabbers. Rehabbers are investors who buy cheap properties, repair them to raise their value, and then sell them for a profit. Competition is tough in the field of rehabbing that is why rehabbers buy a good property as soon as possible. However, it is undeniable that raising a significant amount of money is not easy for beginners in the business. That is why they love hard money lenders, who are also known as private money lenders. These are the people who make the lives of rehabbers a bit easier.
This type of creative financing is very convenient. Unlike banks and other traditional lenders, hard money lenders process loans in just days. This speed of processing is very much appreciated by investors because it allows them to know their next move fast. If the loan is approved, they buy the property; if it is denied, then they apply for loans from other lenders.
Private money lender usually operate their business on their own. That means that if you get the nod of the lender, you will get the loan instantly. Traditional lenders, on the other hand, need the approval of a certain number of personnel and superiors before they release loans.
When it comes to assessment of borrowers, banks are more stringent. They also take more time. They check borrowers’ creditworthiness by scrutinizing their sources of income. They also require a good credit score. Private money lenders hardly care about all these documents. What they want to see is good collateral. In the case of rehabbers, the house they want to fix and flip will serve as collateral. If the lender sees that that property has a potential to appreciate after you rehab it, he will give you the financing you need.
These loans are based on the after repair value of the property. You will usually get between 60% and 70% of the ARV. For rehabbers, this amount is already enough to purchase a property. In many cases, closing costs and repair expenses may also be rolled into the loan.