One of the earliest obstacles that a real estate investor will face is financing. While some investors already have the working capital they need for their business, there are always those who have to seek ways to get the funding they need. This is where alternative financing options come into play, like hard money loan providers.
Hard money has been known as a “loan of last resort” as it is often associated with high-interest rates and questionable practices. But the truth is, it’s quite a viable loan option, especially for real estate investors looking to build some purchase or repair capital for their real estate investment projects. Hard money lenders are organized money lenders operating as loan companies but are not in any way associated with banks.
Hard Money Lenders vs. Private Lenders
Hard money lenders often use many of the same criteria for deciding who gets a loan as a bank would, but they often consider clients that a bank may have turned down. They are also known to accept projects which fall outside the scope of what a bank would usually approve for a loan.
On the other hand, private lenders are just private citizens who happen to have a surplus of cash that they can loan borrowers. The big difference is that private lenders have their own terms when it comes to interest rates and payment. They can be a friend, a business, or a family member. While private lenders seem enticing, it’s usually a lot safer to go for hard money lenders if you’re looking to borrow some capital to invest!
Why do real estate investors use hard money loans?
Real estate investors use hard money loans for different situations that usually involve funding deals.
The main reason for an investor to resort to hard money loans over traditional financing is because of efficiency. Hard money lenders have the ability to fund a loan quickly, and in some cases, even as fast as a week.
If you’re a real estate investor, this type of loan becomes an excellent financing option when you need a sizable loan quickly, without all the bureaucracy and red tape of banks. The most common scenarios where you might need a hard money loan include:
- Fixing and flipping homes
- Land loans
- Construction loans
- If you’re experiencing credit issues
- When you need a quick loan
Loan amounts for hard money deals can be determined by the ratio of the loan amount divided by a property’s value, known as the loan to value ratio (LTV). Some loans are based on the after repair value (ARV), which is based on the property’s estimated value after the borrower has made improvements on it.
When you can’t or don’t want to go through a traditional lender, a hard money loan can be a very good option to go for. They closely resemble high-interest and medium-term loans from traditional banking institutions—but without all the hassle! These short-term loans are a quick and easy way to get the capital you need to keep the ball rolling and get you started on your real estate investment projects.
Whether you’re a first-time investor or an experienced one, DFW Investor Lending can help you get the best deal there is without any problems. We are one of the most sought-after hard money lenders for DFW real estate investors. Find out which of our loan programs are right for you. Contact us today!