Have a little money that you’re looking to invest? Investing in rental properties or fixing up and flipping houses can be a profitable undertaking.
But these types of investments require a substantial amount upfront and you might not have quite enough. Banks aren’t interested in lending to you since your credit report is less than stellar.
So, what do you do? You may be able to use hard money loans for real estate to make your dreams come true.
Let’s look at how it works.
Collateral
A big difference between hard money loans and conventional bank loans is the collateral requirement. This is what makes the hard money loan so much easier to get.
The lender is taking less of a risk with their money since they require collateral. If you default on the loan, they get whatever you put up as collateral. They can then sell it to recoup their investment.
What if you don’t have any collateral?
That’s generally not a problem when using hard money loans for real estate. You can put up the property you’re buying as collateral, provided it meets a few requirements.
Fix and Flip
Hard money loans tend to be more expensive than bank loans. They have shorter terms, higher monthly payments, fewer requirements, and often no prepayment penalties.
This is what makes them perfect for real estate investors. Are you wanting to buy a fixer-upper, put the work into it, and then sell again for a handy profit?
A hard money loan is perfect for that. Once you sell the house, you can pay off the loan from the profits and say goodbye to years of interest payments.
Rental Properties
It can be hard to get a traditional loan for a rental investment property. In this case, you can go for a hard money loan first.
But, you don’t plan to sell the property quickly. Instead, you plan to keep it for a number of years, earning money from the tenants as they pay their rent. Hard money loans usually have short terms that may be hard to pay back so quickly.
A good technique is to use the hard money loan to get started. Buy the property, get it set up and stabilized. Once it’s stable, a bank will be more likely to offer a conventional loan at a lower interest rate.
Use that money to pay off the hard money loan. You can pay the bank loan off with your tenants’ rent payments.
Foreclosures
If you have built up enough equity in your property, you may be able to use a hard money loan to avoid foreclosure. You’ll have to study the terms carefully to see if it’s right for your situation.
If you’re already struggling, a high-interest hard money loan may not be the best. But, in some cases, it can buy you the time to need so that you don’t lose your house.
Interested in Hard Money Loans for Real Estate?
Now that you’ve seen how to use hard money loans for real estate, we may have piqued your interest. Feel free to contact us if you want to learn more about this great investment option.