Hard Money Loans & Distressed Properties: The Perfect Match

A distressed property is one that is being listed by the hard money lender or has entered into the foreclosure process. There is a multitude of reasons why a property is classified as being distressed, but regardless of the cause, this type of real estate presents a significant opportunity for savvy investors to get an ideal purchase price and considerable profit. If you’re contemplating acquiring a distressed property, but don’t have the capital on hand to complete the transaction at this time, here’s a few compelling reasons why you should use a hard money loan to get the funding you need in a short amount of time so you don’t miss out on a great deal.

Pros of Acquiring Distressed Properties

Prior to obtaining a loan, it’s essential to comprehend the overall benefits of acquiring a distressed piece of real estate. When a lender repossesses an asset, they are typically looking to offload it as soon as possible so they can recoup the initial investment they made in the form of the loan. This urge to quickly sell the property usually means that the listing price is much lower than you might otherwise be able to afford in a given location. Additionally, more often than not, investors will generally be able to realize a handsome profit by making renovations and upgrades to increase the home’s attractiveness to subsequent buyers on the market. The sale can potentially be completed in a short amount of time, and if you’re able to keep the rehab window short, you can repay your hard money loan quickly and avoid substantial interest fees. Here’s a closer look at why you should consider a hard money loan for funding the acquisition of a distressed property.

Quick Approval Process

One of the most favorable aspects of hard money loans is that they are significantly faster than conventional sources of funding. Your credit score doesn’t weigh as heavily into the approval process—alternatively, the property’s valuation is most important as it is used as a collateral asset to secure the loan. From an investor’s perspective, this is ideal as you can have access to financing in a matter of days as opposed to the months it typically takes in order to get approved by a bank or a similar lending entity.

Enhanced Buyer Profile

Hard money loans enable investors to have cash in hand to offer to the distressed property’s seller, which can be extremely useful if the property is a hot commodity and there is a lot of competing offers being submitted. Having the ability to offer cash provides real estate investors with a certain degree of leverage when it comes to the negotiation process, and the entire loan process can be completed in a short amount of time. This allows investors to pounce on last-minute deals—giving them a distinct advantage over the competition in up-and-coming areas where other investors are looking to land deals.

Ideal LTV Calculations

An additional benefit of going the hard money loan route is that the loan-to-value (LTV) calculation differs from those conducted by conventional lenders. This means that investors may potentially receive more funding than they would from another lending entity, even though the LTV ratio may appear substantially lower initially. Conventional lenders are required to follow certain federal guidelines by tabulating loan amounts from the purchase price or appraised value. Hard money lenders, however, have the flexibility to choose the value they want to utilize for the LTV, as they do not have to abide by the federal rules. That means hard money lenders factor in higher property value, and, depending on the particular circumstances of the given transaction, may be able to consider the value of the property after the renovation process is complete—or the “After Repair Value” (ARV) as opposed to the current value. The end result of this process is that real estate investors are often able to obtain the funds they need both for the initial acquisition of the distressed property, but also money to make the desired repairs.

Express Capital Financing is a direct/nationwide lender of bridge and hard money financing as well as small and large balance commercial mortgages. If you are looking to partner with a hard money lender, Express Capital Financing offers pre-approval letters within 24 hours. We’d love to connect with you!