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What Are Some Considerations Of A Hard Money Investor?
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What Are Some Considerations Of A Hard Money Investor?

You may have heard of these types of investors and think that they are a good fit for you. But do you know what some considerations of using a hard money investor are? We will take a look below and see what some of the down sides to using these types of loans are.

A hard money investor is one who lets a real estate investor use their money to purchase a property instead of having to obtain a mortgage loan through the bank or lending company. There are many pros to using this type of service, but there are a few things that you need to be aware of:

  • The term of the loan is normally short
  • There are usually higher fees than going to a bank
  • The interest rates are higher than a traditional mortgage

Shorter Term

When using a hard money lender, the length of the loan is significantly shorter than if you were to go to a bank or a lending center. While the buyer can usually get a 15 or 30 year mortgage loan on a property, the term of a loan through a hard money investor is typically anywhere from 6 months to 3 years. On select properties, they can be longer, though this is not typical. With this time frame, it is usually not practical to purchase a property with the intentions of putting a renter in it. This type of loan is meant for the buyer to get the property, make any necessary repairs, and turn it over for a quick profit.

Higher Fees

Part of how a hard money investor makes a profit on his investment is to charge you, the borrower, fees for just using his or her money. These investors know that they can get access to their money, usually within an hour or two, instead of waiting days for the bank to give you an approval. They know that this is a convenience for the borrower, and they charge for it. The typical rate is anywhere from 2% to 10%, depending on the investor and the amount borrowed. For a $250,000 loan, this is anywhere from $5,000 to $50,000 just to use their money. But if the property is a good deal and will not last long, this could still be a good option.

Higher Interest Rates

These days, with the housing market the way it is, interest rates are at an all time low. Still, for some, it is hard or even impossible to get a loan with these rates. That's where the hard money investor steps in. For a local investor, sometimes credit checks do not even take place. The investor might do a walk through of the property, and loan you the money that day. However, the interest rates are usually 12% to 20%.

Using a hard money investor does have its setbacks. But if the investor is looking for a quick "flip" of the property, a hard money investor might be a better choice than the traditional lending options.


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