Hard Money Loans: Everything You Need to Know
Private money loans sometimes have a bad reputation, but they are a beneficial way to secure financing for your commercial real estate. Also referred to as hard money loans, this type of financing occurs when a property owner secures funding through a private investor as opposed to a bank or another financial institution. The property owner is dealing with a single person one-on-one instead of having to convince multiple people at a bank to finance a project. The amount of money one can expect to receive with this loan ultimately depends on the value of the property in question.
One big difference between loans from private investors and loans from banks is that investors are more often interested in the property itself. Banks most often look at the property owner’s credit history and bank statements to determine if a loan is a good investment. An investor simply wants to know if he or she can recoup the investment over the course of several years. Most of the time, the terms surrounding hard money loans is about 12 months. However, longer terms are possible that extend between two and five years.
You can secure a private money loan on virtually any type of property. Whether it is industry, commercial, multi-family residential or single-family residential, you should be able to locate an investor willing to provide you with the essential funds. However, you may need to find an investor who specializes in the exact type of property you want. For instance, if you want to secure a multi-family apartment complex, then you need to find an investor who has provided money for those types of properties in the past. There is generally no need to ask someone who only invests in industrial buildings in this situation.
Private money loans are highly recommended for when you cannot secure financing through a bank. You may not have a good credit score, or you may be unable to wait for weeks and months on end to hear a bank’s decision. You can usually reach a decision on a hard money loan much more quickly.
Hard money loans are great for when you need to secure a land loan or when you are planning a fix and flip on a property. Most of the time, you can hear back regarding the status of the loan within one week compared to 30 days with a bank loan. The interest rate for this loan will depend on the exact person you are dealing with.