Why would you use a hard money lender
In the current volatile economic period, banks are cutting back on home loans. The financial industry has been hit hard by the credit crunch forcing them to restrict their funding avenues. This is bad news for real estate investors who want to take advantage of the available opportunities, but they do not have enough capital. However, the situation does not have to be hopeless since they can always opt for hard money loans.
Often, a real estate investor is rushing against time to secure a property before someone else does. In such periods of low or no cash flow, then hard money loan becomes the best option. For one, unlike conventional loans, hard money loans are usually processed quickly. Besides, the borrower does not have to prove their creditworthy to the hard money lender since the property acts as collateral.
Many a times, a smart real estate investor will see a good deal, where a layman might consider to be unworthy. It might be a rundown property that is being sold a throwaway price. However, you as the investor know that with a few repairs, the property is likely to fetch a good price at no time. However, you might just have enough money to secure the property, but no money for repairs. At this point, hard money lender becomes your savior because the lender only needs to be convinced that the property is prime, and they process the loan within no time.
As described above, assuming a real estate investor could qualify for a traditional loan, then resulting to the hard money lender is just a matter of timing. Perhaps, you are there as an investor, you have identified a property, and you want to foreclosure before another investor can smells the deal. A bank loan will take at least 30 days to be processed. Assuming you need to close the deal in less than a month, you might end up losing the property to another investor. In another scenario, you want to broker some property whereby you wish to secure some properties, and dispose off shortly after to another investor. You have an option of informing the investor you have in mind and lose on your commissions, or you could talk to hard money lender and pocket your dues within no time.
How many times have you as an investor identified an old property in the neighbor that has the potential for revitalization? However, sometimes you might be hesitant to commit your money to such a property may be because you have another one in mind. However, you being a smart investor, you know you should not let a good deal escape you. At this point, hard money loan is the best option as long as you can convince the lender that the investment opportunity makes sense.
As explained in the above examples, a real estate investor does not always opt for hard money loans because conventional financing are not an option, as many times it is just a matter of timing.