Hard money lenders are usually widely misunderstood, especially with investors new to Real Estate. As soon as we mention what our range is for interest rates, we see THAT look. It would be beneficial to explain why hard money lenders exist and how they can help new and experienced real estate investors become successful in the real estate industry.
First of all, if everyone was able to get approved for a loan through a large financial institution, then there really wouldn’t be a reason for hard money lenders to exist. The majority of us would want the less than 5% interest rate rather than 10-15% interest rate. Unfortunately, not everyone can get approved for those. Most of us have a mortgage on the home that we live in – going against the steadfast debt-to-income ratios required by banks. Do you have perfect credit? Not everyone does. People with spotty credit or people that have many different loans in their name have a hard time getting approved through large financial institutions. That’s where TABS, LLC comes in.
Hard money lenders lend on the asset more-so than the borrower. If the deal is good, the credit of the borrower does not need to be perfect. However, most lenders will still run a credit report on the borrower. Most hard money lenders instead, focus on the asset itself. While we can’t speak for every hard money lender, we can speak for us. The first thing we focus on is the project: what is the investor paying for it and how much will it be worth after repair.
The good thing about hard money lenders is that we provide short term loans and we can close quick! Most real estate investors can turn to a hard money lender who offers bridge loans between acquiring the property and seeking permanent financing for the property. Especially if time is of the essence and they know it’s a great deal but they don’t have time to wait to get approved through a bank. Additionally, most sellers that real estate investors work with are motivated and want to get the property out of their hands immediately. However, be cautious and knowledgeable about the minimum holding period before you can refinance out of a hard money lender.
Another advantage of a hard money lender is that most of us provide the construction/renovation costs for the property. As you can imagine it takes time to get approved for a construction loan through a bank (and could be very difficult if there is already a loan on the property), why not combine the two?
We hope that this clarifies what a hard money lender does and how they can help you and your business. Remember, also that we are a resource and want to help you make money!
Wishing you success in all of your endeavors!