Understanding How to Benefit from Hard Money Commercial Loans

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Understanding How to Benefit from Hard Money Commercial Loans

2page_img4-bigThere are many advantages to using hard money commercial loans. Once you understand the benefits you can begin using this financial tool to build your personal wealth.

First, it is important to know that hard money commercial loans are not the answer for everyone who can’t get a loan from a bank or traditional lender. It is true that the loan approval is based more on the value of the property being purchased than the credit history of the borrower but there is more to the process than just the property value. Borrowers need to understand the additional terms of the loan and be able to meet the deadlines for repayment.

By design, hard money commercial loans are meant to be short term loans. For this reason the loans are very appealing to real estate investors who are looking to purchase a property, make renovations and then sell quickly for a profit. Investors will also use these loans on occasion when the time required to close on a traditional loan does not meet a seller’s timeline. But then the investor must refinance with a traditional lender to pay off the short term loan.

In addition to the sped of processing, another benefit is that hard money lenders are not concerned with the number of loans that you are currently carrying. In the case of an investor or a real estate flipper, they could have several open loans. If a traditional lender is not be willing to grant a loan due to existing loans, then a hard money lender is a great alternative.

Notice the Trend

As you might already have concluded, hard money loans are a great tool for short term investing in real estate. The terms are less restrictive and the process is much faster due to the stream lined nature. Because the loan is secured by the property being purchased and not the borrower’s ability to make long term payments, multiple loans are not an issue. But all of these benefits do come at a certain cost to the borrower. The interest rate on a hard money loan can be more than 10% greater than the current rate for a traditional loan. But the short term nature and the potential for profit on the investment make the higher rate an amiable solution for the borrower.

The Wrong Tool for the Job

The only issue that could arise is if a borrower chooses to misuse commercial hard money loans. There are a few ways that this can happen. The first case is deciding to use a hard money loan because you have been turned down for a traditional loan that you could not afford. If you are looking for a way to over purchase a home or to over extend your real estate portfolio then chances are that you will lose the property very quickly. Understand that the hard money loan payments will be due very quickly and you will have little time to find alternative money to pay the loan. The other issue can arise if you purchase a property to flip but are not well prepared to make the renovations and quickly sell the property. Be sure to have a solid plan in place to have your property on the market before your payments are due. Hard money loans are a great resource if you choose to use them responsibly and work within the terms of your loan.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
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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 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

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