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5 Reasons to Use a Hard Money Loan
May 05, 2023
If you're considering real estate investing, whether you are a seasoned professional, a property developer, or brand new to the whole experience, you probably have stumbled across the term "hard money loans." But you may be wondering: what exactly are they? How are they any different from traditional bank loans? And why do they matter to me? In this post, we'll explore definitions, their function, and what you need to know about them to maximize your investing experience.
What are Hard Money Loans?
Hard money loans, aka private money loans or asset-based loans, are just one type of short-term financing most often used by real estate investors or developers to purchase, renovate or refinance properties. Simply, a hard money loan is a loan for a property that doesn't come from traditional lenders, but from people or private companies that accept assets as collateral. This type of loan can be beneficial for a few reasons, mainly:
- You don't need to have great credit. Because hard money loans are not traditional bank loans, the borrower's financial history or credit is not necessarily taken into consideration. The loan is based on the value of the property alone.
- It speeds up the process. Because you're not going through a traditional financial institution, the borrower can get their money within a matter of days, instead of weeks or months. This can be helpful in situations such as foreclosure auctions or competitive markets.
So, how does it actually work?
Hard money loans are typically provided by private lenders, such as investors or small companies, rather than banks or other large financial institutions. The short-term loan ranges from a few months to a few years, and, to compensate for the higher risk involved with hard money loans, the interest rates are higher.
As mentioned above, the key factor in these types of loans is collateral: the property being purchased or renovated. The value in question determines the loan amount, and the private lenders tend to provide loans ranging from 50-70% of the property's appraisal. You'll need to provide a down payment on the property (about 20-50%) and then that property serves as the loan's security. If the loan is not repaid, the property is foreclosed and sold to recoup the investment.
Why Choose Hard Money Loans?
So to close, why would you choose to use a hard money loan?
Despite the higher interest rates and fees compared to regular loans, they can be a great option depending on your situation. Here are 5 reasons you, the borrower, might use a hard money loan:
- Credit Issues: If you have a history of poor credit, foreclosure, or bankruptcy, you may find it challenging to qualify for traditional loans. Hard money lenders focus on the property's value rather than your creditworthiness, making these loans a viable option for borrowers with credit issues.
- Time-Sensitive Deals: In a competitive real estate market like Boise, a quick offer can make a difference. Hard money loans have a fast approval and funding process.
- Property Renovations: If you're a real estate investor who plans to employ the BRRRR method of real estate investing, you'll need to purchase and rehab properties to increase their value. A hard money loan is a great option for this type of investing, because the property serves as collateral, and the loan can be used to fund the purchase and renovation costs. Once you complete renovations, the property can be sold or refinanced with a traditional loan.
- Flexible Loan Terms: Hard money loans typically employ more flexible loan terms and requirements. Instead of only considering credit score or income requirements, lenders have the potential to consider factors such as the property's potential value, the borrower's experience in real estate investing, and the overall profitability of the deal.
- Investment Properties: If you're looking into purchasing non-owner occupied investment properties, like rental or commercial properties, you may find it difficult to qualify for a traditional loan, especially if you're just getting started. Hard money loans can be a viable option for financing investment properties, as they are primarily based on the property's potential value.
If you have more questions about Hard Money Loans, you know where to find us! We'd love to talk with you about all things real estate investing, and look forward to meeting you.
Give us a call at 208-957-0208 or email us at info@boiseturnkey.com to get started!
Springtime in Boise, Idaho, brings a burst of life and color after the winter chill. With its mild temperatures and beautiful landscapes, there are plenty of activities to enjoy during this vibrant season. Here are the five best things to do in Boise, Idaho, during the spring:
Itching to get away? Ready for an pre-summer, much needed vacation? We have a solution: go on a day-trip staycation to feel like a tourist in your hometown. Many of our clients, friends, and neighbors have recently moved to the great city of Boise, Idaho. However, when we move cross country (and during a pandemic!) it's easy to miss some of Boise's best spots. Here's how we would plan the day, if we were you.
Are you considering dipping your toes into the world of real estate investing? Whether you're eyeing residential properties for rental income or looking to flip houses for profit, understanding the role of credit scores is paramount. At Boise Turnkey, we believe that arming yourself with knowledge about credit scores can be a game-changer in your real estate investment journey. So, let's dive in and explore everything you need to know about credit scores in real estate investing.
Finishing an unfinished basement can significantly increase the usable space in your home and add value to your property! Here's a step-by-step guide on how to finish an unfinished basement:
Are you a savvy real estate investor looking to level up your game and rapidly grow your rental property portfolio? If so, the BRRRR method might just be the key to unlocking your next level of success. BRRRR, which stands for Buy, Rehab, Rent, Refinance, and Repeat, is a powerful strategy that allows investors to recycle their capital and build a substantial real estate empire. In this blog post, we'll explore how you can use the BRRRR method to go from owning one rental property to an impressive portfolio of 10.
The Treasure Valley goes all out for Christmas. From ice skating, to decorations, to simply enjoying the snow and the cozy time together with our families, we at Boise Turnkey wait all year long for the joy that the holiday season brings in Boise. For this month's blog, here's our top 10 best things to do to celebrate the holidays in Boise! Whether you're new to Boise, thinking about moving to the valley, or are just looking for something new to do this year, this blog is for you!
Investing in real estate can be a lucrative endeavor, but it's not something you should dive into blind, without proper financial preparation. Just like any other investment, real estate requires careful planning and a solid financial foundation to ensure long-term success. At BoiseTurnkey, we're determined to help you invest no matter where you're at! Here's a place to start, so you can confidently step into the world of real estate investment: Assess Your Current Financial Situation Before you embark on your real estate investment journey, it's crucial to have a clear, realistic understanding of your current financial situation. Start by taking a close look at your income, expenses, debts, and assets. Create a detailed budget to gain insight into your monthly cash flow. This will help you determine how much money you can comfortably allocate to real estate investments without jeopardizing your current financial stability. Set Clear Financial Goals What do you hope to achieve with your real estate investments? Are you looking for passive income, long-term capital appreciation, or a combination of both? Setting clear financial goals is essential to guide your investment decisions. Knowing your objectives will help you choose the right real estate opportunities and create strategies to achieve them. Build an Emergency Fund Real estate investments can come with unexpected expenses, such as repairs or vacancies. It's essential to build an emergency fund now to cover these unforeseen costs, without compromising your investment or your personal finances. Aim to save at least three to six months of living expenses in your emergency fund. Reduce High-Interest Debt High-interest debt, such as credit card balances, can be a significant barrier to real estate investment success. Before you start investing, paying down those high-interest debts. Reducing your debt load will free up more funds for investment and improve your overall financial health! Improve Your Credit Score When it comes to real estate investing, a healthy credit score is crucial. Lenders use your credit score to assess your creditworthiness and determine the interest rates you'll qualify for. Review your credit report, correct any errors, and take steps to improve your credit score by paying bills on time and reducing credit card balances. Create a Realistic Investment Budget Once you've assessed your financial situation and set clear goals, create a realistic investment budget. Determine how much you can comfortably invest in real estate without straining your finances. Remember to factor in not only the purchase price of properties but also ongoing expenses like property taxes, insurance, maintenance, and property management fees. Explore Financing Options Real estate investments often require significant capital, but you don't need to have all the money upfront. Explore various financing options , such as mortgages, loans, or partnerships with other investors . Choose the financing method that aligns with your financial goals and risk tolerance. At BTK, we have clients that use a variety of investing methods, and we'd love to talk you through all your options for financing. Diversify Your Investments While real estate can be a valuable addition to your investment portfolio, it's important not to put all your eggs in one basket. Diversify your investments across different asset classes to reduce risk. Real estate should complement your overall investment strategy, not dominate it. Continuously Educate Yourself Real estate is a dynamic field, and market conditions can change rapidly. To make informed investment decisions, commit to ongoing education. Attend seminars, read books, and stay updated on market trends and regulations. Knowledge is a valuable tool for successful real estate investing. Click here for a free, up-to-date Guide to Real Estate Investing in Boise! In conclusion, getting your finances in order is the first step toward a successful real estate investment journey. Take the time to assess your financial situation, set clear goals, and build a strong financial foundation. With careful planning and a well-thought-out strategy, you can confidently enter the world of real estate investment and work towards achieving your financial dreams.
Once you've been with Boise TurnKey for about five minutes, you know we are passionate about BRRRR Real Estate Investing. The first R is for Rehab (and all the terms that encompass the reality of taking an old, outdated, or simply gross house and making it a beautiful home.) Also known as house flipping, it's gained immense popularity in recent years as an enticing way to generate passive income through strategic investments. In this guide, we'll take you through the 5 Step basics of house flipping, and leave you with 5 tips for flipping success, providing you with a solid foundation to embark on your journey towards a successful BRRRR investment.
At Boise TurnKey, we’ve been BRRRRing before it had a name. While there are many ways to invest in real estate, BRRRR is the simplest way to get started with limited funds and resources. BRRRR is an acronym that stands for Buy, Rehab, Rent, Refinance and Repeat. Is this your first rodeo? Don't think twice about it–we've put together an overview of the basics to get you on your way.
Warm air. Long nights. Seeing the city alive well after dark. Running around with friends and family just for fun. Sunscreen, pool time, and ice cream. Soaking up every possible moment outdoors. Here at Boise Turnkey, summer is kind of a big deal. There are so many things to see and do, and we think everyone deserves a chance to enjoy the city of trees during its warmest months. Some might think going out of state is the best option for their summer vacation, but we’re here to argue otherwise! Need some convincing? We created a list of The 5 Best Things to Do in Boise in the Summer. Let’s dive in!