Real estate is one of the best investment ventures, and its rich history proves this. Furthermore, many wealthy individuals have buttressed this point. Andrew Carnegie, Theodore Roosevelt, and Warren Buffett are just a few.

Of course, who is in a better position to teach success than a successful person? You can click here for more on this subject. That being said, the immensely capital-intensive nature of real estate investment is one of the challenges for most people. Thankfully, there are traditional financing options, but the million-dollar question is how helpful they are.

For what it is worth, they can be very restrictive in several ways. For starters, the processes involved can be full of complexities and time-consuming. As a result, many potential and even established investors stand very little or no chance. Are there any chances of beating these odds?

Say hello to hard money loans!

What Are Hard Money Loans?

These are secured unconventional finance solutions provided by specialized lenders or even private individuals for the purpose of financing a specific project. Besides the fact that they are not granted by traditional finance institutions, the nature of the collateral is one of the reasons they are clearly unconventional.

In the case of funding real estate investment, the property or properties that are purchased or developed serve as the collateral. As a result, factors such as the creditworthiness of the borrower and the value of owned assets do not matter. This is one of the simplicities and an impressive one at that.

Hard money loans are typically known to have some distinctive characteristics. Some of the said characteristics include the following:

• Quick Approval & Funding
• Short-Term Repayment – It is typically between 6 – 36 months
• Interest-Only Payment – This is besides a balloon payment that is usually made at the end of the agreed loan’s repayment term
• Lower LTV (Loan-to-Value) Ratios
• A Higher Interest Rate – It is typically higher than it is with traditional loans

There are a few others, but these are major ones. For more on the above-listed features and others, you can see: https://www.business.com/.

Steps to Getting a Hard Money Loan

Of course, there are fewer odds when it comes to securing hard money loans compared to traditional finance options. Knowledge of the appropriate steps is therefore important.

At the very least, it ensures that you secure yours from the right lender, which is always important. To this end, the steps in question include the following:

Assessment

You should not consider taking out this loan or any at all if there is no valid reason for doing so. This calls for understanding your needs and whether they are enough reason. Against this backdrop, some of the things to be done include:

• Having an understanding of the loan’s purpose
• Figuring out the exact amount required
• Being very factual and realistic about the repayment time frame
• Having a comprehensive project plan – This should include ROI (Return on Investment) details

There is very little or even no sense in securing a hard money loan or any loan for that matter if you cannot answer these questions. So, do a good enough job in the area of need assessment.

Research Lenders

There are undoubtedly advantages of securing this real estate finance solution over the traditional bank financing options. However, the truth is that a hard money loan can also have its challenges. This could be in the areas of repayment structure, terms & conditions, and several other areas.

Well, dealing with the right lender increases the chances of avoiding these challenges or significantly mitigating them, at the very least. It is why you cannot afford to deal with just any lender. In the spirit of only settling for the right option, some helpful selection yardsticks include conducting research based on:

• Reputation & Track Record
• Reviews & Testimonials – From reputable online and offline sources
• Service Transparency – This is in areas such as communication and pricing
• Pertinent Licensing and Credentials
• Service Specialization

Furthermore, it also helps to compare several options. So, there should also be a basis for comparison, regardless of how good an option appears to be.

Prepare for Application

A strong application increases the chances of having the application accepted and funds disbursed. You should therefore do all you can to have a strong application for the hard money loan and the availability of certain information is required for this. Some of the said information includes:

• Comprehensive Details of the Property – That would include things like the property’s location, ARV (After-Repair-Value), and its current value
• Renovation Budget – Just in case this is applicable
• Purchase Agreement or Property Ownership Proof
• Real Estate Portfolio

These are some of the details that should be made available. So, ensure that you have them even way before applying.

Evaluation of Loan Terms

Loan terms and conditions will be presented by the lender. Comparison between various lenders is encouraged as earlier mentioned. In the spirit of doing a good job of comparing what various options offer, some things to examine include:

• Origination Fees
• Interest Rates
• Repayment Periods
• Hidden Costs – If any
• Prepayment Penalties
• Closing Costs

By the way, you are under no obligation to accept these terms and conditions. This also means that terms and conditions need to be properly evaluated especially by taking note of the above-listed.

Property Evaluation

You should expect that the lender conducts a thorough evaluation of the property. The fact that the property also doubles as collateral is a major reason for this. To this end, some things to expect at this stage include:

• Review of Property’s Condition
• Analysis of the Property’s Market Value
• Impact Evaluation of Potential Renovations

Overall, you should expect a professional appraisal. By the way, the right lender is also one that is transparent about its evaluation process and fair enough.

Fund Disbursement

Funds are disbursed once everything is finalized. The disbursement usually happens within a few days. It is only reasonable that the disbursed funds are used for the intended real estate project. You can read this study for more information on this. Overall, transparency is also the responsibility of the borrower and not just the lender.

Conclusion

Hard money loans can be a pathway for funding real estate purchases and projects at large. However, it is worth stressing that there are alternatives. Making an informed decision requires being aware of the implications of all options. So, ensure that you do this in the spirit of choosing the right finance approach.