Why Real Estate Investors Need Hard Money
Have you ever thought about investing in real estate, if only you had enough money to buy a house to rehab? Hard money may be just the answer for you.
When you have found a property that is selling for far less than its value, a hard money loan can be made to you based on the value of the property rather than on your personal credit history. You may have to pay 4 – 10 points on the loan, but this cost may be financed by the loan itself. For example, if you want to borrow $100,000 and the lender charges you six points, you may be able to write the loan for $106,000 to cover the cost of the points.
How is this possible? Well, it isn’t if you are buying a home worth only $100,000, but if you are buying a property worth $150,000, the deal looks a little better to the lender. He likes the equity position you are offering. He also likes the high dollar points he will make on the loan, as well as the interest rate which will be higher than on a conventional loan.
How does this benefit you? Although the cost of the money you will be borrowing is high, you will (hopefully) be able to rehab the house quickly and sell it to pay back the loan quickly. You will only be paying the high interest rate for a few months before paying the loan off entirely. As far as the points, the increased value of the house after you rehab it will be more than enough to allow you to pay the points while still making a handsome profit. You may even get the lender to base the debt to equity ratio on the “after-rehab” value rather than the “as-is” value. This will allow you to finance the rehab costs with the loan, rather than coming up with additional money on your own.
After you have turned a profit on your first several homes, you may begin to qualify for more conventional financing at a cheaper cost, resulting in higher profits as you go!
Hard Money Bankers