As most experienced real estate investors know, getting started with a project can require quite a bit of capital funding. In the past, it used to make sense to always go to your local bank or credit union to seek business loans to fund investment projects. But ever since the housing market crisis of the late-2000’s, banks have been heavily regulated regarding mortgage lending practices, especially on investment properties. That’s where hard money lenders come in.
Though the term “hard money” may evoke some negative connotations, the reality is that there are several benefits to working with hard money lenders. Whether you’re a dedicated house flipper, or a landlord growing a portfolio of rental properties, hard money lenders can provide certain attractive advantages that big banks simply can’t.
Faster Closing Times for Home Loans
When working with big banks for more conventional financing on investment properties, the process can take quite some time. Big banks require multiple rounds of internal approval, and can often take in the neighborhood of 60 days to close. When working with a hard money lender, there’s much less bureaucracy involved, so decisions are made much more quickly. Many hard money lenders can close in as little as 7-10 business days; for deals where title is already prepped and all paperwork is in order, funds can be received in as little as 2-3 business days.
Knowing that the real estate market is constantly fluctuating, it’s important to jump on a good deal when you see it — expediency in obtaining capital is key. If you don’t have the cash on hand to fund a deal out of pocket, working with a hard money lender is often the quickest way to get it.
Fewer Requirements for Loan Approval
Along with faster closing times, a key advantage to working with a hard money lender over a traditional bank is that hard money lenders require fewer personal documents to approve a loan. Private lenders are more interested in the value of the property itself than what the borrower’s personal income or credit history is. Granted, private lenders can and do calculate risk and may turn down deals for a number of reasons, but when all parts of the process are considered, getting funding from a hard money lender is generally easier.
Hard Money Lenders Measure Against Future Value
Most big banks will look at the standing value of a property when determining loan terms. This can be a big hassle, as borrowers may need to take out one loan for the purchase price and a second loan for the construction to be completed. Hard money lenders, on the other hand, assess a property based on future value to determine what they’ll be able to lend for the purchase and construction, which makes for a much more convenient experience for borrowers.
Higher Volume of Projects for Investors
By leveraging investments and keeping their own cash available, investors are able to take on a higher volume of projects by working with a hard money lender. Many hard money lenders, including Pimlico Capital, will lend on multiple projects at one time, sometimes funding the rehab of entire city blocks. Working with a big bank will not likely provide this flexibility, even after years of developing a relationship. When you develop a relationship with a hard money lender, they may become more comfortable with your style of investment and offer better terms over time.
Private Lenders Can Be Flexible
Since you’re working directly with the people who will be funding your project, there may be some wiggle room on terms if a deal meets certain criteria. There is often room to buy down interest rates or negotiate loan terms that are more outside of the box depending on who you’re working with. Of course, there are still general guidelines that most lenders follow to mitigate risk, but it’s a lot easier to negotiate with the person you’re borrowing from than to get a bank’s approval to change their standard terms.
While the above is not an exhaustive list of advantages to working with a hard money lender, it should give you the big picture: Hard money loans offer real estate investors more flexibility, convenience, and speed, all of which are very important in the real estate business. Pimlico Capital offers hard money loans with 6-12 month terms and rates as low as 7.95%, and we’re also able to refinance hard money loans into 30-year rental loans after a rehab project is complete. If you’re an investor seeking a capital partner, check out our rate calculator to see what financing options you qualify for!