Hard Money Rehab Loans

People interested in earning money in the real estate business by rehabilitating certain properties often need to consider a financing method. Whilst for the basic level of repairs you can apply for a traditional loan, when you are completely rehabilitating an estate you will most likely need to find a hard moneylender.

You should be prepared to pay higher fees and interest rates for these particular types of loans, but hard money creditors often have flexible repayment methods. Additionally, they are prepared to take the chances that banks and other similar financial institutions would consider too much of a liability. However, hard moneylenders often impose certain limitations regarding the usage of the loan.

The difference between hard money and traditional loans
First of all, the main difference between these two financing methods comes from the way creditors calculate the loan amount and interest fees. A traditional secured loan, such as a mortgage, will only be able to grant an amount of cash based on the current appraised value of the property. Therefore, if you were to purchase a house that needs major repairs and renovations, you would be forced to take out an additional loan for that purpose.

The value of the hard loan is calculated using an approximation of your home’s value after the repair and renovation job. Additionally, any upgrades that you install will be taken into account. In both situations, your home will need to be inspected by a real estate agent to establish how much your house is going to be worth after the makeover job.

Furthermore, some creditors offer you the possibility to repay only the monthly interest rate until the rehabilitation of the property is complete. Therefore, you will not feel an additional financial burden before you have earned a profit from your purchase. This is just one of the perks that some moneylenders offer, but you can negotiate other alternative payment methods as well.

However, you can obtain a hard money loan for other purposes than the real estate rehab business. Due to the flexible nature of these loans, many people that own small businesses find them useful as a short-term financing method. Regardless of their line of work, hard moneylenders can estimate the viability of certain projects and are more open to negotiations then conventional money agencies.

What to keep in mind before purchasing a certain property
Before deciding whether it is wise to invest in a certain house for rehabilitation purposes, you should keep a few things in mind. First of all, you will need to compare the selling price you negotiate with the current owner plus the value of the repair investment with the ARV. Keep in mind that hard money loans for rehab are not cheap, so you will need to make sure that you are actually earning a profit from your transaction.

Additionally, remember that the quality of the area where the house is located is equally important. Therefore, you should think twice before purchasing property in a neighborhood with a bad reputation or that is missing the most common commodities in walking range. All these factors will have a negative impact on the estimated selling price of the house. Furthermore, you will have trouble selling the property fast once the renovation is finished. Since this business is all about the speed of the transactions, take the time and consider all these aspects before making a purchase.

Finding a hard money rehab lender
If you have decided on a certain property and you are sure the investment is worth it, you will need to find a trustworthy hard money rehab lender. The interest rate you should expect to pay ranges between 10% to 20% of the loan’s value.

The first thing you should enquire about is the lender’s set of conditions regarding the initial payment methods, since you cannot expect to earn any money while the house is in repairs. Therefore, you will need to see whether the hard money creditor of your choice has any preferential payment plan until the renovation of the property is complete. Since these loans do not function on the same principles as conventional ones, you may be able to close a mutually beneficial deal.