Investing with Hard Money
If you are interested in investing in Real Estate, do you have the funds available to begin and finish the project? There is the old saying, “a fool and their money are soon parted.” Over my 15 years of Real Estate experience I’ve seen too many people with big dreams and small bank accounts. Some people watch 10 minutes of a half hour home improvement video and think they are qualified to handle any home remodeling job. I have news for you. The property will cost money. Tools and material cost money. And of course you have to pay those property taxes. I will cover facts about choosing the right property for investment in other articles. This article will deal with Investing with Hard Money.
Hard money lenders are a catch word in the Real Estate market for investors that loan money to people who buy, remodel, and sell homes. They are commonly known as flippers. Is hard money lending a good idea? It may and may not be. You have to know who you are dealing with. I would personally avoid any overseas lending companies you find on the Internet. They may or may not actually exist. If you don’t have a substantial amount of funds for a down payment and unexpected issues, you may want to stay out of Real Estate investing. Like everything else, it takes money to make money in Real Estate.
Look for local hard money lenders. Someone who you can meet face to face. They do exist. Have your attorney look over the paperwork and agreement. A consultation with an attorney could wind up saving you thousands down the road.
Hard money loans are generally for properties that will be purchased and quickly sold. Normally within 6 months. Interest and up front costs do vary. You will be paying a much higher rate than normal banks will charge. Check with local lenders to see what loan packages they may offer. A home equity loan may be a good source of funds.
I’ve seen investors try to use hard money loans to build an empire of rental properties. The problem is, hard money loans charge high interest rates, may be short term, and require high renewal fees. All of that cuts into your profit.
I’ve seen investors whose kingdom is a house of cards. Borrowing from one source to pay off one loan, then another, and another. Applying for charge cards, borrowing on those until they reach the limit, then searching for other sources. This is usually in the rental sector. You would expect to have tenants pay their rent on time. But that is not always the case. I’ve heard it before. All of a sudden a rash of tenants comes up short. Short enough that payments are not made and the foreclosure bandwagon moves in to pay their tune. You don’t want that to happen to you. Local banks have investment packages. But you have to watch out for certain conditions on those loans. I will cover those details in another article.
Hard money loans normally carry from 10-18 percent interest. Do the math. Gather all the figures and see what the sale price could bring. Then look at your profit. Is it worth all that time and work? Everyone wants a piece of your pie from the lender to the tax man and the insurance agency. Plan accordingly.