What Is Hard Money Lending?
In the world of finance, there are actually two terms connected with lending: hard money lending and soft money lending. Soft money loans are those with flexible payment schedule plans and borrower-friendly conditions; while hard money loans are usually those with relatively strict terms and payment schedule plans, and everything is totally up to the lender.
Hard money lending is offered by both private and commercial lenders. Private lenders are usually affluent individuals who want to make some profit by lending their money to individuals they consider good payers/borrowers. Commercial lenders, on the other hand, are financing establishments that lend money as their business to people who wish to obtain a loan. It is usually real estate investors who need these kinds of loan because in their case, it becomes a win-win situation. The loan providers will get their profit from the money they put out, and the borrower will likely earn a quick profit from the property he or she chose to invest on, while being able to meet the payment schedule and terms of the lender. So basically, even though the terms and payment plan might be fairly strict and rigid, there are still many who go with this because this can be a quick approach to acquire finances. The minute your loan will get approved, you get the money right away.
Given that with hard money lending most of them usually are private lenders, they'll have their very own specific requirements for the loan's approval. The real estate investor's expertise could be a key aspect impinging on the approval of the loan, however there are actually other criteria also. That is the reason why a good relationship with lenders is essential for real estate investors. Developing a strong relationship with them can be done because private hard money lenders are individuals, and as long as they have a good relationship, the borrower sees that when they see a good opportunity, he or she will have the required resources. Nevertheless, for those new to real estate investing, locating these individuals is probably not easy to achieve; although, they are usually looking for new opportunities to loan their money. Hence, if you're a newbie, keep your eyes and ears open for these.
Just to get a concept concerning hard money lending, these are usually short-term loans starting from six months to five years, subject to the conditions of the loan provider; and the regulations used for each loan is usually from one half to three quarters of the property price along with the post repairs. In terms of the points, will probably be ranging between two to ten on top of the loan's sum. Yet again, these conditions depends on the lender - it's their call. On the other hand, it is known that when hard money loans are usually financed by private sources (individuals), the terms usually are sterner than commercial lenders. Albeit, once the investor has located the ideal loan company for his needs and vice versa, then hard money lending is unquestionably useful for both parties.
Jared T. Coleman is an active real estate investor based in Kansas City, MO. He is a member of the Mid-America Association of Real Estate Investors (MAREI) and works exclusively with investors who want to grow, learn and succeed at real estate investing. Get more information now at http://mareinet.com/.
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