An Investor Loan: The Benefits and Essential Points to Consider
As an investor in real estate, you may already be accustomed to the process of applying for loans. However, if you're investing in properties with the intent to "flip" them or repurpose them, you're in a different category than other investors. You may need to look into obtaining a hard money loan for investor loans. With a hard money loan, you will be able to access funds quickly and efficiently for a short-term investment.
What is a Hard Money Loan for Investor Loans?
A hard money loan is a type of loan that is secured by physical property. It is also referred to as a "bridge loan" or a "private equity loan." Hard money loans are often used by real estate investors to purchase, renovate or upgrade a property. These loans are different from traditional loans because they are funded by private investors or groups, rather than banks or mortgage companies.
How Does a Hard Money Loan Work for Real Estate Investors?
A hard money loan is accessible within a short period, typically within 7 to 14 days, whereas a regular loan could take several weeks or months. In order to acquire funding, the investor must supply some form of collateral (usually property) and show the projected return on investment. Interest rates on hard money loans can be higher than traditional loans, but overall, the benefits can outweigh the cons for those engaged in fix and flip scenarios. Rather than tying up long-term loans, investors can utilize and pay back the money more quickly, leaving no debt remaining.
What Types of Properties Can Be Financed with a Hard Money Loan?
A hard money loan can be utilized for any type of property, commercial or residential. However, the focus of the investment must be on quick turnaround. For instance, the investor may prefer a property to be purchased below market value, fix it up to turn around the investment for a quick gain. Properties that are usually thought of as being riskier could be considered viable investments, as well as:
- Distressed Properties
- Foreclosed Properties
- Short Sales
- Residential Investment Properties
- Commercial Properties
What Kind of Collateral Do I Need for an Investor Loan?
The collateral needed for a hard money loan is typically the property itself. Private investors will lend according to the amount of equity in the property, up to around 75% of the market value of the property. This allows the investor to move forward on acquiring a property quickly, while the investor gains funds while working with the acquired property.