Reasons for using hard money loan

Posted by Chris Goulart on July 31st, 2019

There are various reasons as to why you should use a hard money loan for real estate investments.

When you hear the words "hard money loan," what is the primary thing that you think of? Is it shady looking individuals that conduct their business in dim back streets and charge a high rate of interest?

Hard money lenders have gotten a bad rap in the past.  When bank money was free and easy, hard money lenders often times did not offer much of a benefit.  Rates were higher, and many hard money borrowers were simply those who had extremely poor credit or were in dire financial straits. Times, however, have changed.  These days many highly successful investors, and investors with excellent credit, take advantage of San Diego County hard money loans. These types of loans are tools to be used for the successful real estate investor looking for leverage, speed and peace of mind with regards to successful funding.

What is a Hard Money Loan?

Hard Money Loans in San Diego County are loans secured by real estate. Private money specialists work with individual investors, pools of investors, family pooled money, semi institutional money, lines of credit and other private sources of funding.  These loans are typically six months to three years in term, although longer term loans are available if the need is there.  These are typically interest only loans, which means payments are much lower than if the loan were amortized over the short term offered.

The main underwriting factor for investors on hard money loans in San Diego is the equity in the property.  This is the main component when evaluating a file – the loan to value ratio.  Simply put, this is the ratio of the proposed loan amount to the value of the property – either as is or as complete.

Property condition is not always a concern for hard money loans.  Many loans are made on substandard properties.  These are properties the banks will not lend on, and many real estate investors leverage this fact to find profitable deals.  By purchasing property with a hard money loan that is not able to be financed by a bank, then rehabbing the property and reselling it, the investor has created not only value in the property, but also value in the market place.  Being able to sell a property where prospective buyers can obtain bank financing is paramount to maximizing profit on a fix and flip type of deal.

Who Should Use a Hard Money Loan?

Investors needing quick funding are one demographic of hard money loan clients.  Hard money can fund much faster than institutional financing generally speaking.  It’s not unheard of for hard money loans to close in a matter of days.  For investors looking to secure favorable purchase prices in the very competitive market of San Diego, being able to close quickly is of the upmost importance.

Investors purchasing properties in need of repairs are another demographic of hard money loan clients.  These properties, as mentioned above, likely will not qualify for bank financing.  Being able to close on a transaction that the general public cannot obtain a loan for is one way to create a competitive advantage.  Leveraging this advantage to secure the property, and then reselling it after repair to someone who wants to live in the property is a great way to create profit.

Finally, for those who are unable to qualify for a bank loan due to credit issues, recent foreclosures or other problems, hard money offers an opportunity to finance a property.  

About the author

All California Lending is a highly respected originator of hard money loans in San Diego and the surrounding areas.  They have years of experience and the resources to help fund some of the most difficult transactions. Call them at 877 462 3422 to discuss your scenario and options today.