Sometimes as an investor you may come across a property that requires quite a huge amount of money to purchase it but because of limited resources you forfeit that opportunity. What many investors especially the beginners are not aware of is that there are several financial institutions which provide short term hard money loans within a very short period of time. such kind of loans are usually preferable to huge investors such as real estate companies that often buy land and other property that they come across. The term hard is used simply because it is somehow hard to pay back.
These loans are normally provided by individuals or other small groups based on either your credit score or your collateral. The good thing is that you may have a low credit score but still qualify for the loan since what they usually look at is the size of your assets. If you are an investor and you are looking forward to increase your financing sources then these types of loans are best for you. However you should be aware of the risk involve before you get into it.
There are several pros and cons of short term hard money loans. Below are some of the advantages and disadvantages.
More options for collateral
The good thing about hard money lenders is that they accept many types of collateral unlike other financial institutions. You can even use your anticipated cash flow from the asset you want to buy or even your home as collateral. They can also lend you up to sentry five percent of the value of the property you want to buy. And just in case things don’t go your way and you are unable to meet the LTV ration then you are allowed to use assets such as your retirement benefits, house etc. as collateral.
These loans are very easy to get and most experienced investors use such loans to finance renovations and repairs since they can quickly close the transaction and then establish separate accounts with the financial institutions in order to pay for the renovations and repairs.
Higher risk and cost
One disadvantage of short term hard money loans is that they attract high interest rates and lenders always demand upfront fee. You also stand to lose your property used as collateral just in case things don’t work out.
In summary, short term hard money loans are a quick way of getting finances especially for the big investors such as real estate companies. However, it is important to understand the risk involved before applying for the loan.