If you’ve ever started a business or were involved in a real estate transaction, you will understand that it takes money to get to a certain goal. For example, in order to incorporate a business, the founders need to pay for filing fees and in order to maintain the corporation in good standing for the length of the business endeavor. In real estate, there are mortgages and construction loans that must be secured in order for the deal to be real. In this article, we will be discussing one type of capital solution which is the hard money loan and will be discussing the reasons someone would choose hard money and will be discussing some of the drawbacks as well.
What to Know About Hard Money Lenders in North Carolina
Typically, people in the real estate sector choose to use hard money lenders because of the speed in which they can move money around. Think about it, would you rather wait to get money from someone that will take two weeks to a month to distribute the money or someone that can have the money in seven days? The answer is obviously the seven days so that you can go ahead and secure the property, but you have to balance the amount of interest you will be paying for the hard money to see if it makes sense to wait. Most of the time it doesn’t make sense, and speed is king.
These loans are used in renovation projects as well as in new construction. Because these projects are more risky and provide a higher rate of return, it makes sense to pay the high interest that the lender is asking for. Of course, after a few transactions, your lender may want to lower his return because you’re easy to work with and are creating the results you spoke about. Another reason why people may choose to work with hard money lenders is because they typically don’t worry so much about the investor’s personal credit history, but instead they focus on the deal and how much value it will create.
The drawbacks of using a lender like North Carolina Hard Money Lending, are, first off, that you will pay a lot more interest for using the loan. There will most certainly be some sort of origination fee, but if the lender is a legitimate one, he or she will put these costs into the total sum of the loan so that it is not an upfront expense. Finally, a drawback of using hard money lenders is that they want you to put up a lot more of the money for the deal. This is anywhere from 20 to 30% of the total purchase price of the property since most hard money lenders want to keep their loans around 50-70% loan to value ratio (LTV).
In conclusion in this article, we discussed the topic of hard money lenders and discussed why it is important to review your options to find out if you actually need a hard money loan or not. If you find out that you will be paying way too much in origination fees and interest, it may be a better idea to look for private money individuals who will be able to loan you the same amount of money, or more, as the hard money lenders but they would get paid a smaller return and would be on title for the property. Whatever you end up doing, make sure you have everything lined up and a plan B in case your lender can’t actually pull through.