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What Is A Hard Money Loan And How Can You Use It?

A Hard Money Loan is an option for someone who needs cash quickly, or for someone who can’t secure a normal mortgage loan. 

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It’s a short-term, non-conforming loan that does not come from traditional lenders, but rather individuals or private companies that accept property or an asset as collateral.

Hard money loans are typically used to buy hard assets – such as real estate. 

Borrowers may turn to hard money loans after a loan or mortgage application is denied, or to avoid the lengthy process of getting approved for a loan through traditional means.

Hard Money Lenders Are Regular People Just Like You And Are Generally Very Easy To Find.

What do hard money lenders actually look like? 

Well, they're really just regular people who have gone through specialized training to know how to use their funds in a way that best benefits them. 

Yes, they look just like you and me. 

They can often be found inside your local newspaper advertising. Or a simple Google search for “hard money lender” or “acid based lender” in your area will typically find them.

Hard Money Lenders Are Normal People, But Charge Extremely High Rates

Now, you need to know that hard money lenders’ terms are usually high – meaning that they're going to have high requirements for things such as loan to value.

Lenders don't want to lend too much money, but they do often lend very, very quickly; which is usually their advantage. 

However, when you’ve got to get a deal closed and need money fast… this is the way to go. 

Hard Money Deals Are Quick Tools That Should Be Used On A Very Limited Basis

Hard money loans should be used in limited quantities. 

If you know how to raise your own capital, these loans should simply fill a void in the marketplace. 

Unfortunately, those who mostly use hard money loans typically don’t know how to build a database of investors that grant them access to capital when it’s needed. 

You Should Expect High Interest Rates And Even More Points On Top Of That From A Hard Money Lender

A point is a percentage of the entire balance of the hard money loan that's typically paid up front. This is just for concentrating and beginning the relationship in excess of the interest rate. 

Hard money loans also have a higher than normal market interest rate. If market interest rates are typically around 4% – 6%, the hard money interest rates may be 7% – 10% in the same situation – sometimes higher. 

Even with these sky-high rates, hard money loans have flexibility. Not always… not all the time. But if you get yourself in trouble, they will most likely help you out.

Overall, hard money loans are great tools when it comes to growing your real estate business. However, you must be intentional with how you utilize them and ensure that your investment portfolio is strong enough without them. 

Interested in learning more about hard money loans and short-term rentals? Head to my YouTube channel to take the next step in expanding your real estate business.