Why You Should Get Hard Money Despite The High Interest Rate

Why You Should Get Hard Money Despite The High Interest Rate

Many investors have been discouraged by the high interest imposed by hard money lenders. Actually, they were probably "turned off" by lack of information.
Compared to traditional lenders, hard money lenders impose a doubled interest rate. That is surely not music to borrowers' ears, although those who continue to invest in real estate using this type of financing will say otherwise. They do not use a high interest rate just to make life more difficult for real estate investors. To understand why they do this, it is important to know that such lenders risk getting losses whenever they fund rehabs or other properties. Bank and other traditional lenders carefully assess a person and his capability to repay the money whenever a borrower applies for a loan. They check his credit score or report and require the borrower to present numerous documents including a proof of income. This process is tedious and time-consuming, leaving the borrower to wait for around 30 days before he knows if his application is approved or rejected. This is to ensure that the loan will be repaid.

Hard money lenders, though, are at a bigger risk of making losses. They lend money even to those who do not have a good credit standing. That's because they look at what a borrower is presenting rather than whether he has the ability to pay the loan with his current income. They assess whether the fixer upper a borrower will flip will actually result in something positive. They will decide to fund your rehab project if they see that you will be able to pay them once the property is sold.

They also compute how much money you will receive through the ARV, or after repair value of the fixer upper. Usually, the borrower gets around 70% of the ARV - an amount enough to purchase the fixer upper and in many cases, even fund the repairs. That's buying, repairing, and selling a property without spending a penny.

Experts say that that is the essence of getting hard money financing: you get to flip a house and earn from it fast without spending your own money. They call this OPM, or investing using other people's money. While interest rates in hard money financing may rise to around 18%, would you still care about it if you will get a 75% rate of return from the project you will get? That 18% will be dwarfed by the profit you will get from a project you might miss if you rely on tradition funding.

Let's say you opt for banks and other traditional lenders that offer a 9% interest on the loan. With the competition among rehabbers heating up amid the recession, another rehabber could snatch the fixer upper you want to flip while you are waiting for the processing of your loan. Take note, that is processing and not approval. There is no guarantee that you will get the money after you wait for 30 days or so. But in hard money financing, loans are approved or rejected in just days, allowing you to seek money through other channels in case you are denied, without compromising the deal you want to close. Online networks like RehabHardMoney.com understand the need for you to buy and flip the property immediately and that is why they offer fast and easy cash. You can also prequalify for loans online just by filling out a submission form at RehabHardMoney.com. Rehab Hard Money applications are approved at least two days after you submit the necessary papers. You won't have to worry about finding a lender near your area as Rehab Hard Money can take care of that for you. Rehab Hard Money has a network of lenders across the country waiting to fund your next rehab project.