If you’ve been around the real estate industry for a while, you’ve probably heard of a hard money loan a time or two. But what exactly is it?

A hard money loan is a loan of last resort – also referred to as a short-term bridge loan.

Hard money loans are backed by the value of the property, not by the credit worthiness of the borrower. 

This is because the property itself is used as the only protection against default by the borrower. 

Hard Money Loans Have A Lower Loan-to-Value Ratio Than Traditional Loans.

If you have an asset that is valued at $100,000, the lender is not going to lend 60% - 90% of that value. 

Instead, they may only be willing to lend 10% - 50% of that value, since they're not doing a full underwriting package. The lender is trying to mitigate their risk because hard money loans don’t have the same in-depth process that conventional loans do. 

Hard Money Lenders Base 100% Of Their Return On The Quality Of The Asset.

In their eyes, a hard money lender considers their options as black and white. 

For example – their worst case scenario is that you don't pay and they take the asset… which is  how they get their money back. 

Hard Money Loans Are A Quick Solution For Cashflow – But As A Last Resort.

If you have a free and clear house and you're wondering, “What on earth can I do to get some money really quickly?'' 

This could be a solution.

Hard money loans can allow you to take advantage of a fix and flip opportunity, or to buy and hold a property that’s under construction. 

These loans grant you the opportunity to finance all kinds of neat things for which you could be using the capital. 

Sometimes real estate isn't as liquid as we'd like it to be, and a hard money loan could be your perfect solution. 

But I must warn you – use it with caution. 

Its interest rates are higher and the process to repossess your asset is a lot quicker than it is with a conventional loan.

Are you ready to learn more about how to leverage hard money loans to scale your real estate investing portfolio? 

Access the FREE Short Term Rental Blueprint video course: https://cashflowdiary.com/blueprint 

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Listen to the Cashflow Diary podcast on Apple Podcasts: https://podcasts.apple.com/us/podcast/cashflow-diary/id623140540 

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