Are you thinking of buying an investment property? Real estate investing is one of the most lucrative ways to build wealth and diversify your portfolio.
However, not many have hundreds of thousands of dollars in their accounts to purchase a rental property. While there are many investment property financing methods available today, not all will work for everyone. One feasible option for those who don’t have deep pockets and can’t qualify for a traditional mortgage is using hard money loans for rental property. But what are hard money loans and how do real estate investors find hard money lenders?
Related: Real Estate Investing Tips: How to Finance a Rental Property
What Are Hard Money Loans?
A hard money loan is a form of short-term financing that is typically offered by a private investor or company and is secured by real estate. Unlike banks who look at your credit score and income, hard money lenders are focused on your equity in the property used as collateral and the potential return on investment. In case you default on the loan, they will resell the property to recoup the money.
The best thing about hard money lenders is that they will typically lend money for real estate projects that banks won’t fund. For instance, they may fund distressed properties that traditional lenders won’t. Moreover, you can receive the full amount without being obliged to pay a down payment for rental property.
Hard money lenders also don’t require a lot of paperwork. Therefore, approvals and closings can be completed quickly, typically in less than a week. This makes hard money loans great investment loans if you need to close fast. For instance, if you are trying to acquire an investment property with many competing bids and don’t want to lose out on it, a hard money loan can be a great choice. A bank loan will typically take a month or more to get funded. This won’t allow you to close quickly and you may end up losing a good deal.
Using hard money lenders has some drawbacks too. Since they are willing to fund risky investments, they will charge higher rates and offer shorter terms. As such, they are best used for short-term loans. If you can get approved by banks and traditional lenders, it won’t make much financial sense to hold a hard money loan for a long period since banks and traditional lenders usually charge relatively lower investment property mortgage rates. However, if you need to close fast, you can use hard money loans for rental property and refinance after a short period with a long-term loan.
How to Find Hard Money Lenders Near Me
Of course, to use hard money lenders for rental property, you’ll need to know where to find them. Here are some of the top tips on how to find hard money lenders for real estate:
1. Google Search
The internet has been a pivotal tool in the Information Age. Nowadays, it’s possible to get any information you want at the touch of a button. Therefore, if you are wondering how to find hard money lenders, the internet would be a good place to start. By simply googling “hard money lenders for real estate” with the name of your location, you can find individual companies and compiled lists of hard money lenders in your area. This simple exercise can provide you with a good number of hard money lenders to consider. You can then contact and evaluate them to find the right lender for you.
2. Attend Local Real Estate Investor Club Meetings
Attending local real estate investor club meetings is another great way to find hard money lenders near you. You are likely to meet a number of hard money lenders looking to network with prospective borrowers. When you meet them, focus on building good relationships with them. This will increase your access to capital whenever you need it. You can also ask other real estate investors who are present at such meetings for recommendations.
3. Network with Real Estate Professionals
Real estate agents, attorneys, mortgage brokers, and other real estate professionals who have experience working with investors can also be a good source of hard money lenders. They usually have extensive real estate networks and can easily connect you with experienced hard money lenders.
Related: How to Build and Maintain a Real Estate Investment Network
4. Social Media
Get on social media and you’ll be sure to find a hard money lender for real estate in no time at all!
More than ever, professionals and businesses are leveraging social media to attract potential clients. This is because social networking presents a powerful opportunity for individuals and businesses to reach big audiences in a relatively short period of time. As such, you can use social media platforms like Instagram, Facebook, and LinkedIn to find hard money lenders.
Finding the Right Hard Money Lender
When it comes time to evaluate hard money lenders, you want to choose a lender that will be the best fit for you. Here are some of the key things to pay close attention to when it comes to finding the best hard money lenders:
1. Reputation
Check their online reviews and ask around to get feedback from their past clients. This can help you avoid scammers.
Related: The Most Common Real Estate Investment Scams
2. Speed
The best hard money lenders don’t have complicated approval processes and won’t make you wait for funds for a long period of time. They should be able to fund your loan in a week or less.
3. Flexibility
A good lender should be able to work closely with you and give you a tailored experience.
4. Loan Rates and Terms
Hard money loans are only useful when the numbers work. Therefore, be sure to use Mashvisor’s rental property calculator to estimate cash on cash return before choosing a lender. This tool, which also functions as an Airbnb calculator, will easily show you how different loan terms will affect the rate of return on a rental property.
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The Bottom Line
Hard money lenders can be a great financing option when you can’t qualify for traditional financing or when you need a loan to be funded quickly. However, they can be costly since they charge a much higher interest rate and have shorter terms. If you want to achieve a good rate of return on a rental property, be sure to evaluate potential hard money lenders thoroughly.
