How Do Hard Money Loans Differ From Bank Loans?


Renovation lending

The real estate market has been recovering fast and many people might be feeling that they have missed out on the historically low prices. However, prices are expected to continue to rise, making real estate a sound investment in a time of overall economic uncertainty. It offers opportunities for first time real estate investors. There is a sharp learning curve, however. Prospective home flippers should be prepared to do their homework. Learning how to buy, fix and sell means navigating the hard money loan process, dealing with real estate investment lenders and mastering all there is to know as a first time home flipper.

Reasons to invest in commercial real estate
While real estate prices are recovering rapidly, there’s still room for profitable commercial real estate investing. Securing financing is a major part of the process and hard money loans for real estate investors are a common choice.
There are still some excellent deals out there in commercial real estate investing. The demand for commercial real estate of various kinds – office and retail space, apartment complexes – continues to grow. A new trend noted by commercial real estate investment lenders is a shift in residence patterns in the U.S. Since 2011, for the first time in a hundred years, population growth in the cities has outstripped growth in the suburbs.
This can be attributed to a generational shift. As millennials reach adulthood, they are displaying very different patterns of spending from preceding generations. One significant shift is the decline in car ownership, which goes with a preference for urban living and walkable neighborhoods. This shift can be expected to shape real estate trends for some time.

Why pick hard money mortgage lenders?
There are several reasons why hard money rehab loans are preferred in commercial property investing. Unlike other real estate investment lenders, hard money deals offer a quick turnaround. The processing can take as little as one to two weeks.
Some other characteristics of hard money real estate investment lenders which distinguish them from banks and other mortgage lenders are:

  • Hard money real estate investment lenders will lend on new construction, and they have no hidden fees. However, they have higher interest rates and lower loan to value ratios. Interest rates for hard money loans can begin at 15%, 18% and go even higher.
  • Hard money loans from real estate investment lenders are secured with 30% to 50% equity in a property. This protects the investor as well.
  • The payment period for hard money loans is generally shorter than a bank loan. With bank loans, the repayment period can vary from one to twenty years. For private loans, the maximum duration allowed is 5 years.

Hard money loans have low default rates, which is an indication of the smooth functioning of the process. With their streamlined process, hard money loans from real estate investment lenders are a convenient choice for home flippers, builders and associations.

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