Hard money loans for real estate investments are one way to fund acquisitions with far less red tape and more attractive terms. In fact, hard money loans are a great alternative to traditional commercial lending. These provide a different way to back the purchase of a commercial land parcel, developed multi-use properties, multifamily buildings, and other types of real property. Hard money loans for real estate investments usually offer more attractive terms and conditions. The reason for this is the source of funding, which does not come from traditional banks. When investing in real estate, whether residential or commercial, it’s very important to understand all financing options.
Hard Money Loans Explained
So, what exactly are hard money loans? You’ve probably heard the term before. Even if it’s new to you, it shouldn’t be confusing. Hard money loans are a form of short-term financing, provided by a private group of individuals. These pooled investors are not part of a bank and therefore, their combined capital is used for a variety of investment opportunities. Simply put, a group of individuals pool their money together and loan it for a whole host of reasons, including real property financing. This is very beneficial because it means not having to deal with the bureaucracy of a traditional bank.
Biggest Benefits of Hard Money Loans for Real Estate Investments
Now that we’ve explained what hard money loans are, let’s take a look at their advantages:
- Quick funding. Unlike traditional bank loans for real estate purchases, which can take weeks or even months, hard money loan funding happens comparatively very fast. This is due to the fact there’s no real red tape and bureaucracy to deal with, slowing down the process. And, since it’s provided by a group of private individuals who are motivated to loan money in order to gain a return.
- Flexible terms. Another benefit of hard money loans is they have flexible terms that borrowers can usually customize according to the needs of the transactions.
- High approval rates. We’re all aware of how difficult it is to obtain a commercial real estate loan from a traditional bank. But with hard money loans, the rates of approval are much higher. Meaning, greater chances of receiving financing.
- No or minor prepayment penalties. Yet another attractive component to hard money loans is they generally do not contain prepayment penalties. Or, have relatively small prepayment penalties, unlike traditional real estate loans.