Before searching for the best hard money lenders in California, make sure that such a loan makes sense. While it’s true that private lenders for real estate offer several distinct advantages over traditional financial institutions, the high-interest rates and shorter timeframes make their offerings less appealing to most home buyers. However, for a real estate investor, developing a relationship with a private lender is often lucrative and beneficial. There are at least five times when hard money makes sense over other conservative lending methods.
1. Quick Turnaround
Conventional mortgage loans take time, which many real estate investors do not have when trying to make a deal. Hard money loans provide a quick turnaround because the lender focuses on the value of a property and doesn’t worry too much about the financial position of the borrower. While good credit is a plus, a lender has the property as collateral to settle any debt, which means they can approve a loan quicker than banks and other institutions.
2. Credit Issues
While poor credit is an obstacle for any borrower and concern for any lender, hard money lenders understand the security in collateral. The primary concern for the lender is the value of an existing property or the property being purchased. Credit issues, like foreclosures, do not weigh heavily on the ultimate decision for a hard money loan because the lender can always take the property and recoup their losses.
3. Flexible Repayment
One of the most significant advantages of a hard money loan is flexibility. Traditional loan agreements provide strict terms and repayment schedules through a standard underwriting process. However, when working with a private lender, each deal is custom, meaning there may be wiggle room for negotiation on loan structure and repayment. You will often receive a more personalized experience from hard money lenders because they are individuals and not corporations.
Short-term real estate investments often use hard money because the borrower has no intention of staying in the property permanently. Fix-and-flip investments are a brilliant example of the usefulness of hard money loans. The borrower takes out a loan for the current value of a property; they repair the property, increasing its value, and then sell it within a few months, repaying the loan and earning a profit.
5. Bridge Loan
While hard money is not advisable for most long-term investments, like a permanent residence, because of the high-interest, you can use it as a bridge loan for a home purchase. If you need to purchase a house before finalizing the sale of your current residence, hard money is an option. However, make sure you refinance as soon as possible to limit your expenses and obligations.
Hard money is not the solution to every investment problem, but in specific situations, like those listed above, a private lender is beneficial. However, always be aware of the interest and repayment structure to avoid any complications. If you want more information on loan opportunities, or if you need further clarification on the hard money process, contact a lender and discuss.