Hard money loans are easily available, but what are the advantages and disadvantages of getting one?
By definition, a hard money loan is a short-term loan that has a higher interest. Investors and real estate developers usually use a hard money loan to remain liquid and have a higher chance of success.
In seeking a money loan, some companies may offer better terms or amounts than others. Here are the pros and cons of getting a loan to finance a real estate property.
Money Loan Advantages
Getting a loan can provide leverage for investors who don’t want to risk their personal money. You can easily get into the real estate project you desire while remaining utmost liquidity for your other needs or ventures.
California hard money loans will usually have their own set of financing rules and criteria. But they’re flexible in a way that you won’t be as restricted compared to getting a traditional bank loan. Hard money loans are the go-to loan option for real estate developers who want the ability to change mid-plan if they need to.
The reason why hard money loans are such an attractive prospect is its speed. When you need the money as soon as possible, e.g., when a deadline has been set or a timeframe on which you can join a property project, a loan is usually the best answer.
Hard money lenders know this for a fact and can provide a faster means of getting you the funds than conventional financial institutions. There won’t be any due diligence and credit checks which could slow the process down. A loan company’s primary interest is seeing whether the money is used for a good deal. Also, a hard money loan revolves around collateral instead of one’s credit score.
Money Loan Disadvantages
Higher Interest Rate
Investors must weigh the cost of capital when applying for a California hard money loan. You can ask yourself, ‘is it worth the high interest?’ and ‘will it pay off greater dividends in the end?’.
This kind of disadvantage won’t be an issue if you could pay it off quickly and when your venture is a success.
Sense of Urgency
Hard money loans are short term loans, which means they run for less than 12 months. You must be able to keep up with the payment in order to be able to get a second loan for your next real estate project.