Any loan has a certain amount of inherent risk. If you fail to make the payments for any reason or fail to comply with any of the other terms of the loan, then you could default on the loan and lose any collateral that has been used to secure the loan. In addition, defaulting on a loan will lower your credit score and make it more difficult to secure any type of traditional loan in the future. Understanding the risks of Hard money loans in Colorado is not going to make them go away but it will let you make a well-educated decision about choosing to use Hard money loans in Colorado as an alternative to traditional loans.
Hard money is an asset-based loan which means that as the borrower, you are agreeing to offer collateral on the loan. In the event that you default on the loan, then the lender becomes the owner of the collateral. In almost all cases of hard money loans, the collateral on the loan is the property that you are purchasing with the loan funds. So, in essence, you are risking the property if you fail to make the payments. One other bit of information makes this risk even more apparent. The loan that you get from a hard money lender is not going to be in the amount of the full purchase price of the property. You must make a down payment of anywhere from 205 to 30% of the purchase price to create instant equity. This equity provides security for the lender that the property will always be more valuable than the balance of the loan. So you are risking your equity on hard money.
In addition to risking the property, equity, and your hard earned money, there is also the added money that you invest for fees and interest. If you default all of your investment is gone because the lender is not required to share any of the proceeds from the sale of the property. You might only owe $10,000 on the loan but if you default and the lender sells the property for $100,000 he gets to keep it all.
Hard money loans in Colorado are short term loans which will not normally exceed five years. Some loans are even written for terms as short as six months. This might appear to be perfect for a fast flip, but if you find major issues with the property or can’t find a buyer then six months can go by very quickly. The short-term can work against some borrowers.
The only way to be certain that the risk of an asset-based loan is worth the reward is to fully understand all of the terms of the loan. Knowing the total cost of the loan and all of your responsibilities as a borrower will allow you to evaluate the risk and make a well-informed decision.
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.