Real estate investors often require short-term funding solutions in order to complete critical transactions. Making a profit in this sector requires a variety of skills, and investors have to be resourceful when it comes to financial solutions. Time is often a factor when attempting to resell properties on the market. The lack of funding can erode the total profitability of the purchase. This makes it imperative to get short-term financing as soon as possible. It is helpful to learn as much as possible about the option of a hard money loan. This can help each investor determine whether this is a viable lending solution for the particular investment project.
Bank Loans, and Hard Money Loans
Traditional lending institutions rarely offer flexible terms for investors in this situation. The approval time for bank loans is significantly longer than the hard money loan. This is why the hard money loan is a great option in some situations. These loans do not have to go through an institution with set policies on the terms and conditions. This means that the lender has the ability to issue the loan directly. The approval process tends to be faster, and many hard money loans close within two weeks after the paperwork is submitted. Many banks will make the borrower wait for long periods of time before the loan is even reviewed, and requests for additional documentation are common. All of this can slow down the process, and this erodes the profit margin of the original real estate investment. Banks also tend to have fixed and inflexible rules about the terms of each loan.
NYC Hard Money Loan Benefits
With the hard money loan, the borrower can exercise a little more leverage during the negotiation process. This can affect the most important aspects of the loan, which are critical to determining profit margins over time. Aspects of the loan most affected include the interest rates, repayment terms and loan amount. For example, the ability to extend the total repayment period of the loan means that the borrower can have enough flexibility to meet the terms of the loan. This is an important consideration for investors who are building up a portfolio. Every successful transaction reflects well on the portfolio, and this can help to secure future funding. Another example is the total loan amount of a hard money loan. This amount can be influenced by the quality of the proposal. If the lender believes that the investment will be profitable, the total loan amount can rise. This is one of the benefits of working directly with a hard money lender instead of a financial institution.
Loans and Liability
The issue of liability is always present in any loan process. Hard money loans are not exempt from this fact, and it is important to keep in mind that the borrower has a lot of responsibility when signing a loan agreement. Unlike lawsuit funding, which is a nonrecourse loan, hard money loans have serious collateral which can be repossessed. The benefits obtained by the hard money loan are also partially offset by the responsibilities that are attached. For example, the due diligence falls on the borrower in this situation. Borrowing money from a hard money lender also implies that the borrower will conduct background checks on the lender’s business entities, for example. This can also include a search for public records in order to determine if the lender has been involved in any related litigation.