If you're a property investor, you know that hard money loans are a very powerful tool. In exchange for paying a slightly higher interest rate and origination fee, they give you fast access to money on very favorable terms. While traditional lending is an excellent option for some transactions, hard money is the way to go for deals that need a little something extra.

Hard Money Loans for Investments that Require a Fast Close

Traditional lending execution times get measured in months. Private loans close in weeks, and can close faster. In fact, while a normal private mortgage loan can close in three weeks, some lenders can deliver funds in as little as three days if you have a special need and are well-qualified. This lets you move on the best deals -- the ones that investors snap up quickly. 

Investments with High Potential Yields

If you are buying a house with a six percent annual return, it is probably safe, stable and conservative enough for you to get traditional financing from a bank or credit union. Private lenders give you the funds and flexibility that you need to acquire riskier assets that have higher potential returns. As an example, if you buy rehab properties on which you expect to make a 50 percent return on resale, paying a few extra points of interest for hard money loans is a reasonable expense relative to the profit you stand to earn.

Investments that Need Rehabilitation

Traditional lenders usually look at the appraised value of a property that you are trying to finance. Hard money loans can look at the value of the property after you rehabilitate it. This higher value can provide you with more loan dollars to pay for the property and the improvements, increasing your returns and letting you use your equity to do more deals.

Investors with Challenges Qualifying for Bank Financing

Finally, hard money loans are perfect for investors that have something on their record that might disqualify them from a bank loan where the officer needs to "check all of the boxes." Private lenders look carefully at you to ensure that you can repay them, but the key word is "you." They can overlook your global cash flow, total debt level or even credit score if you have an ample down payment and look to be a good risk.