What are Hard Money Loans? Hard Money Loans are short-term real estate investment loans for the purpose of repairing a distressed property for quick sale on the market. Others also call them fix and flip loan, as in house flipping. You can use these loans to quickly purchase, repair, and sell the property at a profit. Before you start with your hard money loan, we recommend you learn the pros and cons of hard money loans. The more you know, the better your investment will be. Get ahead of the game before going in blind.
Easy to StartIf you’re just jumping into the whole real state thing, a hard money loan is a great way to start out. They’re great for anyone to get involved with real estate investment.
High Loan ValueInstead of your credit worthiness, your hard money loan value is determined by the ARV, After Repair Value, of the distressed property. The proposed rehab will determine the ultimate value of the loan.
Includes Closing CostsHard money loans often includes real estate closing costs.
Quick ProcessYou can close a hard money loan in as little as 10 days. That’s nice, especially if you want to invest quickly.
Less RigidThe terms may be open to negotiation. Also nice, especially if you need a leg up to get in the game.
High Approval RateCollateral (value of the property) is more important than a credit score (likeliness to repay loan). This tends to produce a higher approval rate than a traditional mortgage.
Pay as You GoYou only start paying interest on money drawn from a loan as work is completed, meaning you can take it at your own pace.
Multi-TaskingMore experienced investors can flip more than one house at a time. With a large enough loan, you can purchase multiple properties and repair them before putting them back on the market.
You Need SkillsInvestors need to be well-organized and talented at spotting good real estate opportunities. Once you’re able to keep your rehab on time and under budget, you’ll quickly be on your way to enjoying the fruits of your real estate investment.
High InterestHard money loans have a high interest rates. Fortunately, this encourages efficient repair and a quick sell.
SpeedRepairs typically need to be complete within the first 60 days. This can be challenging if you have multiple properties to work on. If this is you, you may want to consider bringing on a partner to help fix and flip multiple properties at the same time.
Cash on HandRepair work must pass inspection before you can draw reimbursement from loan, so you’ll need some cash reserves on hand.