Let's consider a real-world example to illustrate how a hard money loan can save you money. Suppose you come across a property listed for $100,000. You approach the seller with a cash offer of $80,000, funded by a hard money loan. The seller, eager to close the deal quickly and avoid the hassle of potential repairs or conditions that might come with a traditional loan, accepts your offer.
In this scenario, you've just saved $20,000 on the purchase price. This is a significant saving that you can then invest in renovating the property or put towards your next investment.
Moreover, sellers often prefer "as is" cash offers because they can close quickly and don't require the property to meet certain standards as with FHA loans. An FHA loan might offer the seller a full price offer, but it also comes with the risk of the deal falling through if the property doesn't meet FHA standards.
Now, let's factor in the cost of the hard money loan. Suppose you're paying 3 points on the loan, which comes out to $2,400 (3% of $80,000), and an interest rate of 11% for a few months before you refinance into a lower rate long-term loan. Even with these costs, your total outlay is still significantly less than the original asking price of $100,000.
Real Estate Investing Hurdles One of the most significant hurdles investors face is securing the necessary funding to purchase properties. Traditional lending institutions, such as banks, often have stringent requirements and lengthy approval processes that can hinder your investment opportunities. This is where hard money lenders come into play. Contrary to popular belief, hard money lenders can actually save you money when investing. Here's some additional ways.
Quick Access to Funds One of the key advantages of hard money loans is the speed at which you can access funds. Unlike traditional lenders, hard money lenders typically have a much faster approval and funding process. This means you can secure the necessary funds for your investment in a matter of days, not weeks or months. This quick access to funds allows you to seize investment opportunities as they arise, help a distressed seller, and buy properties below market value.
Flexibility Hard money lenders offer a level of flexibility that traditional lenders simply can't match. They are primarily concerned with the value of the property you're investing in, not your credit score or income history. This means they can approve loans that traditional lenders would reject. This flexibility can open up a world of investment opportunities that would otherwise be out of reach.
Leverage More Deals With hard money loans, you can leverage more deals at once. You can use them to invest in multiple properties simultaneously. This can significantly increase your potential profits and help you grow your investment portfolio more quickly.
Looking Beyond the Down Payment One common concern many people have with hard money loans is the high down payment requirement compared to FHA loans. However, it's important to look beyond this initial cost and consider the benefits of hard money loans. Unlike FHA loans, which expect you to save up money for the down payment, hard money loans allow you to use funds from other sources that FHA doesn't allow, such as credit cards, lines of credit, and personal loans. This flexibility can be a game-changer for many investors, allowing them to leverage other financial resources to secure the property they want.
So, instead of seeing the high down payment as a barrier, consider it as an opportunity to use your resources more effectively. You don't have to save up your hard-earned money for the down payment. Instead, you can use other financial tools at your disposal to secure the loan and the property.
Conclusion While hard money loans can have higher interest rates and upfront costs than traditional loans, the benefits they offer can often outweigh these costs. The speed, flexibility, and leverage they provide can open up a world of investment opportunities and potentially save you money in the long run. As with any financial decision, it's important to do your research and weigh the pros and cons before deciding if a hard money loan is right for you. Remember, the key to successful investing is not just about finding the right properties, but also about securing the right financing. So, don't let the misconceptions about hard money loans deter you from exploring this financing option. You might just find that it's the key to your real estate investing success.
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By: Jhanel Wilson The Savvy REI Title: How a Hard Money Lender can Save you $20,000. Free class on hard money lenders this Sunday. Sourced From: www.youtube.com/watch?v=wpw6GVpW09U
