Before we even mention the ‘Easy Money Myth’, let’s first define hard money.
What Is Hard Money?
A hard money loan is a specific kind of asset-based loan financing, also known as an investment property loan or renovation loan, that provides financing for distressed real estate property.
This includes financing for both the property and the proposed repairs and often includes the closing costs.
Hard money loans come in two varieties: residential and commercial. Each type puts its own requirements on the eligibility of the property as well as the investor.
The Easy Money Myth
The most common myth of hard money loans is that they provide investors with easy money. Some understand this to mean ‘free real estate,’ while others see it as an opportunity to ‘get rich quick.’
Free Real Estate
The Myth
Hard money loan = free real estate. This ‘free real estate’ misconception most likely stems from the ‘asset-based’ nature of this type of investment property loan.
Asset-based means that the loan is secured by collateral, which in this case is the property itself. This typically means that you can secure the loan quickly, and often with very little money down.
(The exact value of the loan is determined by what the property will be valued at after the repairs are completed. This is known as the After Repair Value, or ARV.)
The Truth
Thinking about hard money loans as ‘free real estate’ inevitably leads to disappointment. Any serious investor understands that it takes money to make money.
Also, let’s not forget that, for all intents and purposes, time is money. While a hard money loan may enable you to acquire distressed real estate at a serious discount, managing that property through to profitability will take a significant commitment of time and attention.
Plus, don’t forget that your ability to profitably sell your property comes down to how desirable that property and location are. Having an eye for prime real estate is hardly a skill that comes cheap or easy for most people.
An Easy Way to Get Rich Quick
The Myth
“Hard money loans are an easy way to get rich quick.”
This myth has three parts: easy, rich, and quick. These are all very subjective terms, meaning that they are open to interpretation.
Our concepts of what is easy, what it means to be rich, and how long is quick, are based on our own opinions, hopes, and past experiences.
Now add to this the fact that the average person does not know what an investment property loan is and we’ve got a real recipe for misinformation.
The Truth
Real estate investors who are successful with hard money loans typically love the work they do. They make it seem easy. They do it quickly.
Not to mention, their ability to handle money often carries over into their personal lives. Their natural aptitude and organizational skills enable them to leverage their own profit and resources to become rich.
The enjoyment that these task-oriented, self-motivated men and women have can easily be mistaken for an easy way to get rich quickly.
Fixing and flipping properties alone is not enough to become rich. This work needs to be done thoughtfully, thoroughly, quickly, and come naturally to the investor.
When all of these things combine, however, it is easy to see why others might call it ‘easy money.’
What’s So Hard About a Hard Money Loan?
Truth be told, if you love a challenge, take pleasure in completing long lists of tasks, and are able to manage many different projects at the same time, then there’s nothing really ‘hard’ about a hard money loan.
Now add to this the ability to identify prime real estate in a state of disrepair, the desire to identify and market this property to the right investor, and an appetite for hard work, and you might even wonder why you didn’t discover renovation loans earlier.
Contact Noble Mortgage
Want to learn more about an investment property loan? Then contact Noble Mortgage & Investments today to discuss your financing needs.
You can contact us online, or call us directly at 713-680-8100.
