The toolbox of a real estate investor has many different tools available to them as they build their real estate empire! Using Hard Money to grow your real estate portfolio is just another one of those tools. Remember, money is neither good nor bad, it’s how it is used that determines success or failure in real estate investing. Hard money has its place in leveraging your ability to acquire property in a relatively fast way compared to the long drawn out process of a bank loan. After all, time is money and the faster you have access to the cash, the quicker you can start your next project!
In this blog, we will discuss the basics of hard money loans that will help you build confidence on how to use this amazing tool to leverage your investments.
So, what does the term hard money mean?
Hard money means a short term loan secured by real estate. Private investors (individuals or a group usually called a “fund”) will lend their money out to real estate investors for 6 to 12 months for a typical “fix and flip” or buy and hold property. Some hard money lenders will go as long as 2 to 5 years depending on the project requirements. Some lenders will offer interest only payments or with some principle with a balloon payment at the end of the term. Other lenders may offer monthly principle and interest payments. Rates will vary between 8% and 14 % plus loan origination points. Some lenders charge up-front fees to get started, others do not.
The amount of hard money lenders will provide is primarily based on the value of the property and not as much on your credit score. Interest rate is determined by 4 main variables;
1. Down Payment – The more you bring to the table, the better your rate.
2. Credit Score- The higher your score, the better your rate. Have a bad or low score, partner with another investor who has a good score! Use this partnership experience to take steps to improve your credit score so your next deal you can get a better rate!
3. Experience – If you have 4 or more deals under your belt within 2 to 3 years, the better your rate. If you are a “newbie”, partner with someone who has experience. Consider yourself an “apprentice” and learn from the experienced “master” to eventually invest on your own. Of course, it’s possible that this could be the beginning of a very good and profitable partnership that can last a lifetime!
How to find hard money lenders?
You can search the internet yourself and spend valuable time calling, emailing and asking questions. The best way is to ask for a referral from someone you trust, join a real estate club and network with other RE investors or call a commercial broker/lender who has direct access to private lenders looking for deals just like yours to lend on.
Just like any professional, use your tools properly and they will help you get the job done!
Jim Craig is Vice President of Axe Lending Group. We have in house private lenders for fix and flip deals up to $500k within 17 states. We also broker loans for buy and hold, commercial cash out refi and construction loans for residential and commercial projects nationwide up to $100 million. For more information about Axe Lending Group, visit our website at www.axelendinggroup.com. Jim Craig, email@example.com (832) 940-9643