To hear some property investors talk, you would think hard money is the only way to borrow. For some of them, it is. Hard money allows them to fund their projects quickly and conveniently. Hard money is such a good option for property investors that some of them stay away from banks altogether.
So, what is it about hard money that makes such big fans of property investors? What is it about hard money they appreciate so much? It is not just one thing. There are several things that endear them to hard money loans.
Fast Approval and Funding
Actium Partners, a hard money lender based in Salt Lake City, Utah, says the most attractive aspect of hard money to property investors is speed. Lenders can approve and fund loans faster than any bank. Where it could take a bank anywhere from a few weeks to several months to approve and fund, a hard money lender can do the same thing in days. Actium has been known to fund in as little as 24 hours when necessary.
When you are property investor, speed is everything. You need to be able to close on deals quickly. Otherwise, there are other investors waiting to snatch up properties behind you. If you cannot move quickly, you stand to lose out.
Collateral Secures the Loan
Next up, a hallmark of hard money lending is its nature as an asset-based funding tool. Rather than digging through every detail of a borrower’s financial past and comparing it to current credit score and history, hard money lenders generally make approval decisions based on the strength of the borrower’s collateral. For property investors, collateral is almost always the property being obtained. If it is strong enough, an investor can probably get a loan.
A big advantage of asset-based lending is that investors do not have to spend a lot of time producing a lot of documents to prove their financial positions. This cuts down the amount of paperwork required during the approval process. It eliminates the back and forth that banks and home buyers tend to go through during the mortgage approval process.
Hard Money’s Short Terms
Hard money loans come with comparatively short terms, too. Where you might obtain a 30-year mortgage to buy a house, a property investor is looking at a hard money term of two years or less. Believe it or not, they actually appreciate the short terms.
Anything over two years becomes a burden to the investor. He doesn’t want his capital tied up that long. Rather, he wants to get out of the loan as quickly as possible. So, a term of two years or less is ideal. A property can be obtained, the loan can be paid off, and the investor can get on with his business.
Hard Money Is Flexible
The icing on the cake is that hard money is often flexible. Banks tend to be very rigid in rates, terms, etc. Hard money lenders, because they are private lenders, can be a lot more flexible. They have the ability to structure each loan deal specifically to the needs of the borrower. Property investors love this for the simple fact that every deal they work on is different.
Needless to say, hard money gives real estate investors yet another option to finance projects. If it were not for hard money, many of them wouldn’t be able to get the funding they need to grow their portfolios. They appreciate hard money because it ticks every box on their checklist. It is often the best funding tool they have access to.