When you’re starting out as a fix and flip investor, you’ll need to decide how to finance your projects. Two of the most obvious options are hard money loans and bank loans. However, before you decide which one is right for you, it’s best to know how they differ. Here’s what you need to know.
For real estate projects to be effective, planning and research must be involved. Having the proper paperwork available shows resourcefulness on the part of the borrower, and gives the lender confidence to work with them.
If you’re researching all your financing options for your real estate investments, you might have heard about hard money lenders. But what are hard money lenders exactly, and why do they finance loans that may have been rejected by conventional lenders?
When you’re serious about becoming a real estate investor, you need to have a good understanding of the various financing options available to you. One of these options is the hard money loan.
If you’re looking for a way to finance a real estate investment, then you’ve probably heard of hard money loans. Also referred to as “bridge loans,” these are typically short-term loans provided by private lenders at a relatively high interest rate—sometimes as much as 18 percent. Because of the risk involved, lenders typically require the property as collateral. In some cases, they also require other assets such as the borrower’s home, vacation home, or retirement fund.
Applying for a rental loan is one of the most stressful parts of being a real estate investor. As borrowers, we need to help the lender build a fair picture of our finances. That means we must provide a lot of documentation (read: proof of our financial status).
A well-maintained rental property can be a lucrative long-term investment that provides you with a steady source of income—so long as it’s financed the right way. Here’s what you need to know about the financing options for a buy and hold rental investment.
A fix and flip loan—also referred to as a bridge loan, swing loan, interim financing, or gap financing—is a short-term loan that provides you with the working capital you need to meet the immediate financial obligations of your fix and flip project. This kind of loan is typically for a 12-month term or less and can be obtained in a matter of days. Like most other types of property loans, collateral is required for an underwriter to back the loan.
As banks make it increasingly hard to obtain real estate investment loans, investors are turning to private money loans to bridge the gap. A private money loan comes from a private lending company rather than a bank. The money is often available in days instead of weeks, with less-strict requirements for credit history. Private loans enable cash offers with less hassle. Ultimately, they streamline the real estate investing business, giving investors a powerful tool to act on profit-making opportunities.
Private money lenders are companies that lend money to real estate investors. The key distinction is, they’re not banks. That’s important because it means they offer faster, hassle-free loans. With private money, factors like credit score, cash on hand and yearly income are still important. That said, these points are not as strictly scrutinized as with a bank loan.