As a real estate investor, one of the things you think about constantly is how to procure real estate investing loans.
Real Estate investing loans will cost you money
It would be great if you could always have the money you need to invest in real estate. Wouldn’t it be nice to have a bank account filled with liquid money for your investments? Unfortunately, that’s not always possible.
One alternative is to use other people’s money. In fact, this is one of the key things we teach in our classes on real estate investing – how to find other investors who have the money, but don’t know how to find the investment properties. But, sometimes you have to get hard money – what’s called hard money loans.
Hard money lenders are mainly commercial lending organizations – those who deal solely with the real estate sector. The loans for real estate investing are mainly short terms loans.
These loans are generally known as hard money loans because they are available with stringent terms and conditions, higher interest rates, and upfront fees of anywhere between 3 and 10 points! (A “point” is a percentage point. “3 points” means that you are charged a fee that is 3% of the total loan amount).
Real Estate Investment Loans are Secured Loans
These short-term loans are secured (usually) by some sort of collateral that you provide. The interest rate is high – about 14-18%, depending on the current going long-term interest rates, but the loan is usually for only 6 to 12 months.
The idea is that you’re holding the property only as long as you need to fix it up and sell it for a profit. So, the amount of interest you pay on the loan is negligible when compared to the gain you have in equity of the property. Lenders however check the collateral before providing the loan.
They’ll gather information about you, such as tax returns, bank statements, and they may even take a look at the property. Once they assess the overall risk of the deal, they’ll decide on the fees they’ll charge. Most of these lenders will want to see your business plan as part of their risk assessment, so don’t expect to just walk in the door and ask for a chunk of money because you “found a killer real estate investment deal.”
There’s always some risk – on your part and that of the lender. But, most of the risk is yours to bear. They’ve always got your collateral to fall back on. You have nothing but your hard work and determination. That’s why we teach you to play the game the smart way — minimize your overall risk, find investors with money to play, and invest in real estate that makes sense.
Whether you’re looking at purchasing rental cash flow properties, rehabbing a home, or even multi-family apartments, it’s always a good idea to have a clear and concise plan. Real Estate Investing works when you understand your options. Hard money lenders are just one of many options, but can still play a role in your investment plan.