What is Hard Money and its Pros and Cons

Answering the question what is hard money can open up many opportunities for an investor. But it is important to understand the pros and cons of this method of funding.

There are several methods of funding a real estate purchase or investment, and each has its own benefits and drawbacks. But understanding all of the options allows you to select the method that will best meet your needs. As you begin to explore you are certain to ask what is hard money. The answer is fairly simple. Hard money is a method of financing a purchase which does not depend on the borrower’s credit to secure the loan. Instead, the lender is focused on the value of the property itself to determine if the loan is a good risk. Normally these are short loans and are used often for investment purchases such as house flips or for real estate developments.

One of the largest drawbacks of a hard money loan is the cost of the loan. Hard money loans are normally considered unconventional loans and are not offered by banks or other conventional lenders. Most of the lenders are private individuals or small investment groups. For this reason, they are not governed by the same rules as banks and other financial institutions. The lender is free to determine the terms as they choose and can charge a much higher than traditional loan interest rates. In many cases a hard money loan will have an interest rate 10 percent or more above current conventional loan rates.

Another issue that some borrowers have with a hard money loan is the time that is offered for repayment. These loans are designed to be short term to allow for purchase, renovation and then a quick resale. And that also means that the borrower will only have a very short time before the repayment is due. This can place added stress on completing a high dollar project very quickly.

The Pros of Hard Money

As a borrower, if you are still asking what is hard money, and why should I consider it then read just a bit further. The biggest benefit of hard money is the lack of restrictions which are found in conventional lending. The terms can be negotiated with the lender which is something that will never happen with a major lending institution. Also, there is a great convenience in the speed at which a hard money loan can be requested and fulfilled. Conventional loans can take months to process and mountains of paperwork. But a hard money loan is riding mostly on the value of the property and not the borrower’s creditworthiness. These two factors make hard money appealing to a huge number of investors.

What is Hard Money Used For?

Hard money is a great means of financing a project based on the value of the property and not the borrower’s personal credit history. This makes the process great for new real estate investors who want to learn to flip houses begin to build a real estate portfolio. These loans are also popular with real estate developers who are interested in developing and reselling a property. The key to maximizing this tools benefit is being able to carry the loan for just a short time and then selling the property at a profit to repay the loan possibly even fund the next project.

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

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.