Why So Many Hard Money Loans are Making More Sense

With reality TV shows showing how easy it is to buy, fix and sell a home, short term high-interest mortgage loans have gained in popularity across the nation. Lots of people believe they have what it takes to be a successful house flipper.

When picking out a residential property, an investor might see value adds in a property which can range from converting a supply room or extra garage space to a livable rental unit to raising the rents for tenants paying far below the local market.

The investor looks at possible renovations, repairs, cosmetic upgrades, and capital improvements, to make the property more desirable. In less than six months, once the work is finished, the investor is seeking to flip the property for a higher sales price or at worst, bring in higher rents.

Since the property is in needs of a good amount of aesthetic work, a huge majority of traditional lenders will not offer financing. They prefer to lend on properties that fall within their guidelines and are immediately habitable. It does not matter how well the buyer can repair it. An FHA 203k loan may work but a hard money loan tends to work a lot quicker with less hassle.

If a traditional lender had to take back the property due to you defaulting on their loan, they want properties are that ready for a resale, not ones that need money poured in to get it up to satisfactory condition.

A property is in "as-is" condition is not an issue for hard money brokers, who are by and large prepared to accept greater lending risks. Their lending standards are not as borrower-centric as a traditional lender. Hard money lenders focus more on the asset to sway their decision.So, the future value of the property, after work is completed is strongly taken into account when it comes to an approval or not.

Although purchasing a home along with necessary costs to repair or renovate are high, the investment can payoff very well in the end. For example, you buy a home that is listed for $125,000. Then you make some improvements totaling $25,000. Now, the total cost is $150,000. If you can fix up the house and sell it for $170,000, you just made a cool $20,000. It's a fast way to make a good investment.

If the market is slow, you could lease it to a tenant on a short term lease for a higher than normal rent since it is short term to pay back the hard money loan.

Whether a property is in need of significant capital improvements, rehab work/repairs, or interior and exterior remodeling, a hard money loan is a money source to get it done.