As a real estate investor looking to make a quick profit there may be times when a conventional loan does not fit your schedule and availability of funds. This is where a hard money loan would make sense. Traditionally investors are looking to purchase a residential or commercial property where they can make a steady stream of income for a set period of time before they sell it for a profit. A group of investors may build or purchase a strip mall with the intentions of leasing store fronts to business owners. They will secure a loan for the purchase of the land and construction of the buildings. The terms of the loan may be for a number of years at a conservative interest rate. The investorâs intentions are of course to make money, pay down the loan, and eventually sell the property down the road which will allow them to pay off the remaining loan and walk away with a profit.
A hard money loan would be the opposite of this example. Buyers are looking for a shot turn around on their money and just need enough cash to close the deal. Once closed they will either rehab the property and resell it quickly or refinance the property and pay off the initial loan. Lenders of loans such as these are not your typical primary mortgage lenders. They are either a large private institution or private investors looking for larger than normal rates of return. This type of loan requires a higher interest rate, shorter loan terms, and more points than a conventional loan. Borrowers that get involved in such deals are not worried about rates and loan terms. They just need money right away and plan on paying off the loan quickly.
Hard money loans are all about making money quickly for everybody involved. The lender is not so much concerned with the borrowerâs credit as they are concerned about the value of the property to be purchased. If the property in question will be worth more after some remodeling and will be able to be sold, or the borrowers has the ability to refinance the property after purchase the investment will usually be approved. Most loans of this type are only made for 6 months to two years as the lenders are looking to make a quick profit just like the borrowers. If done properly the situation will be a nice win win for everybody involved.