Traditional real estate financing
Investors looking to finance their investment properties can have a difficult time going through traditional banks. Their restrictions on loans have been tightened significantly for investors. For many of us, that route is just not an option. Hard money lending could be an option for certain situations.
As many a successful real estate investors has discovered, there are other ways to find the needed capital for a fix and flip project. Looking outside of traditional channels can be a smart move, and technology is helping to create more approaches to financing than we’ve ever had before.
Hard money lending
One alternative that’s been around for a while is hard money lending. This approach provides a specific type of asset-based loan financing through which a borrower receives funds secured by real property. Hard money loans are typically issued by private individuals or small companies. In today’s market, with the uncertainty with COVID-19, many hard money lenders have stopped lending. This is not to say that there are still not a few hard money lenders out there that are lending still today at different terms and and interest rates.
The loan is usually no based on your credit score, but on the value of the property you’re buying. These loans can charge rates that are twice those of regular mortgages. On the other hand , the are quicker to secure, require less red tape than traditional bank loans, and can often be secured for 100 percent of the purchase price.
A source of financing that’s fairly new to the scene and rapidly gaining popularity is known as crowdsourcing, or peer-to-peer (P2P) lending. Increasingly, large pools of investors are given the opportunity to be part of real estate investment, with a low minimum investment. So a loan for $300,000 might involve investments from 40 –or 400 –investors. This investment style is new to the real estate market but is getting more and more traction in real estate investing.
With access to this sort of capital, and platforms that can fund projects in a matter of days, many investors are beginning to favor this alternative to the traditional bank. There are others, but by comparison they are piecemeal approaches.
How to find a hard money lender in your area
In today’s market, overrun by mortgage brokers, it is highly beneficial for a real estate investor to seek out a direct hard money lender. This cut costs such as broker points, broker fees and allows you to deal directly with the lender instead of a third party in the way. After you have found a hard money lender, and build an ongoing relationship with him/her, it is much easier for you to access financing quickly on deals you find. Especially during periods like this, during COVID-19, where potentially the real estate market could take a dip, many opportunities will be there for investors who have financing lined up with a hard money lender.