Private money loans, also known as hard money loans, have gotten a bad reputation in the past due to the practices of a few predatory lenders. Those types of companies have been virtually eliminated in recent years, but an unfortunate stigma still lingers. The reality is that this kind of financing may be an ideal solution for real estate investors who are looking to finance their next deal.
What are Hard Money Loans?
A hard money loan is a short-term loan that is secured by the underlying piece of property. Instead of coming from a bank or other conventional lender, these loans are funded by private investors. The terms of a hard money loan are generally 12 months, but can be longer, and payments may consist of interest only with a final balloon payment.
Appropriate Properties for Hard Money Loans
Borrowers can qualify for hard money loans on most types of properties including commercial, industrial, multi-family residential, single-family residential, and land. Some lenders will specialize in a particular sort of property so you will want to inquire about preferences. Also, few lenders will agree to a loan on an owner-occupied residential property due to additional regulations.
Deals Suitable for Hard Money Loans
Hard money loans are appropriate for many real estate deals, but not all. If you’re buying a primary residence and have good income and credit history, you should choose conventional financing. A hard money loan is appropriate for:
- Quick Flips
- Land Deals
- Construction Loans
- Buyers with Credit Issues
- Real estate investors with time constraints
While some hard money loans may have slightly higher interest rates, they have the advantage of quick funding on deals that you may otherwise have to forgo. These types of loans also make deals accessible that conventional lenders may have rejected for one reason or another.
Liberty Commercial Capital provides a variety of real estate financing solutions that will suit the needs of most businesses. Contact us to learn more or to schedule a free consultation.