Starting Investing with Hard Money Lenders

Hard money lenders have helped countless investors plant their roots deep in the world of real estate. Many investors today started by using financing provided by these lenders. Nowadays, these investors can already fund multiple deals using their own money. But before they were millionaires, they sought financing from these lenders.

Some people claim that borrowing hard money lenders is done by those who are desperate for funding. You could not exactly blame these people for making such comments. Also known as private money financing, this funding uses interest rates that are often twice as high as those used by banks. Because of these high rates, private lenders have gained the reputation of becoming the “financing of the desperate.”

Unknown to many though, this funding is sometimes preferred by investors not because they have nowhere else to go but because it suits their specific needs. House rehabbers, for example, use this because they find its features fit for their business.

House rehabbers are investors who buy cheap properties in disrepair. They repair and improve these houses and then sell them at much bigger amounts. Those who are just starting in the business often do not have enough capital to buy properties and repair them. They borrow private money because all of their expenses may be shouldered by one loan. This is more convenient for them because they don’t have to apply again and again to different lenders.

Hard money lenders can release loans that can cover all expenses starting rehabbers might have. Study this computation to better understand this concept: A house rehabber wants to buy a distressed property priced $85,000. He thinks it will need $15,000-worth of repairs and improvements to raise its value to around $150,000. The rehabber will probably need another $5,000 for other unexpected expenses. All in all, he needs $105,000 to sell a house at $150,000.

Hard money lenders will not give him $105,000 just because that’s how much he needs. These lenders base the amount they will release on the price of the property in good value. In this case, the property’s maximum value is $150,000. Rates across the country vary but let’s say the lender agreed to release 70% of that value. The rehabber will get $105,000, which incidentally is also his total amount of expenses.

Many investors who are just beginning in the business of rehabbing houses find this set-up useful. After all, this is how they started. Learn more about this financing at REIWired.com today.