Private hard money lenders afford an excellent opportunity for real estate investors to find versatile and affordable real estate loans. Hard money lenders typically have a broad range of general business experience and are knowledgeable about finance and real estate in particular.
In addition, non-traditional private money lenders, while bound by all the laws and regulations that govern traditional real estate loans, also have the flexibility to accept deals that would never pass the loan committee of a bank or other traditional financial institution.
Here are five reasons to choose a hard money lender when looking for a real estate loan:
1. Business Experience
Real estate investment involves a wide variety of techniques and courses of action. Hard money lenders can examine the particulars of a deal and understand its mechanics to make an informed decision. In other words, the deal does not have to fit a mold designed by traditional lenders. Instead, a private money lender can base his decision solely on the merits of the deal.
2. Capital Availability
Similarly, a hard money lender is not constrained by the risk tolerance of a loan committee or by government regulation. If the lender considers that the interest rate justifies the risk, he can make any deal he wants to. This fact is especially important in highly lucrative but unconventional real estate deals. There are literally thousands of private money lenders looking for these types of deals.
3. Flexible Financing
While there are a variety of traditional real estate loans ranging from commercial “balloon” notes to traditional residential mortgages, they are, by and large, fixed in stone when it comes to terms and conditions. Hard money loans, on the other hand, are controlled by far fewer constraints. Hard money loans do require title searches, escrows, and insurance but these items are meant to protect the lender AND the borrower. The financial terms of the deal, however, are completely up to the parties involved.
4. Rapid Response
Hard money lenders are investors who have decided to make their money work for them. Parking their assets in a CD or savings account does not accomplish this goal. As such, they are extremely interested in consummating timely deals. Count on a quick decision at every step of the hard money loan process.
As with any other real estate investment, the interest rate is dependent on the risk involved in the deal. Nevertheless, interest rates are comparable to many traditional bank loans especially when upfront bank fees are considered. A borrower may not always get the lowest interest rate, but on a short term deal, hard money lenders may still be the most affordable option.