Different Uses of Hard Money Loans


Commercial Real Estate investing often involves availing various kinds of loans that suit a particular financial need and making the right decisions in this regard determines a great deal about the overall success of an investment.

With a plethora of loan options to choose from, it might often get rather tricky to choose the right kind of loan every time.

What happens when you make a poor decision with choosing the right kind of loan? You might lose a few pennies. You might lose a good investment opportunity because your loan was perhaps funded too late.

Or you might make a huge loss, making you lose interest in real estate investing altogether.

Any of these could happen and none of this would if only you can do a little homework about the types of loans that are available out there in the real estate lending market and understand exactly what kind of loans make the most sense under any given situation.

This blog is an overview of hard money loans and the different uses of hard money loans. In order words, we will walk you through the financial situations where hard money loans will make the most sense for you.

Read on.

What are hard money loans?

If you’re a beginner to the world of real estate investing, the first step is to understand what to hard money loans mean.

Hard money loans, sometimes referred to as bridge loans, are short term loans that are secured by real estate, often provided by private money lenders instead of traditional lending institutions like banks.

These loans usually have a shorter term and hence come with expensive rates of interest.  

Here are the situations where opting out for hard money loans makes the most sense

#1 – Fix and Flip deals

One of the most widely used purposes for hard money loans is the fix and flip deals.

Fix and flip deals are real estate deals where an investor buys an undeveloped property with an intention of fixing the property by making some minor repairs and renovations to it, and selling it off at higher rates making good profits.

Such deals are very common among the real estate moguls and they can surely bring in huge profits.

Now, the reason hard money loans make for being the best option when it comes to fix and flip deals is that these loans act as a quick financing needed immediately to fix the property, which will later earn enough in the form of sale proceeds of the property or rental income, which can then be used to pay off the existing loan.

These are also needed on a short term basis and hence do not require other long term forms of financing arrangements. So, if you are looking to fix and flip properties, there cannot be a better option for you than hard money loans.

And if you are particularly looking for hard money lenders Houston, TX or hard money lenders Dallas, TX, check out the best deals on our website and get in touch with us and we’d be glad to assist you in all ways we can!

Our vast spider web of a network across the states can surely be of immense help to you for availing the best deals on hard money Loans from private money lenders. Talk to one of our real estate experts today. Check out our contact page for more information about the same.  

#2 – Construction loans

If you are handling construction projects as part of your real estate investing business, there will often be times when you’ll need some extra money to complete the pending construction on time.

So there are some loan options available to you when you’re looking out for construction loans but what’s the one that will best suit your need?

– Yes, that’s right, hard money loans.

The reason that makes hard money loans best option for construction loans is that they are very timely and can be made available within a few days or even hours in some cases. So, you don’t have to extend your already-running-late deadline by waiting for a traditional loan to get approved.

Instead, you can avail a hard money loan and finish your construction, get the payment of your project and pay off the loan liabilities later.

#3 – When you have a poor credit score

This is a total no-brainer. One of the most compelling reasons why people choose hard money loans over any other type of loan is when they have a poor credit score.

There can be a number of reasons to why somebody has a poor credit score and sure, there are ways you can up your credit score, but it’s a long process and it is going to take time. And in the world of real estate, your time is seriously your currency.

So, if you have a poor credit score and cannot wait until you fix your credit score, your best bet would definitely be availing a hard money loan. Hard money lenders often do not care about the credit score of the borrower, unlike the traditional lending institutions like banks.

On the other hand, hard money lenders are rather interested in the value of your real estate property which you will be providing as a collateral to your loan.

Lenders are particularly interested in knowing the After Repair Value of your property, that is, the estimated valuation of your property after all the due repairs and renovations have been made and this ARV rate is the biggest basis on which they choose whether or not to provide you a hard money loan.

So, that’s basically how hard money loans can be a massive savior for people with a poor credit score. As the famous saying in real estate industry goes – When banks turn you down because you got a poor credit score, hard money lenders will hold you up!  

#4 – When an investor needs some quick Short term financing until a more permanent form of financing is available

There can be cases where you’ll be needing a huge amount of finance to get a deal and you know there are plenty of ways you can get a loan and seal this deal, but this kind of loans have a huge list of procedures you need to go through.

In such cases, instead of waiting for a permanent form of financing, you can make use of hard money loans to take care of your immediate financing needs. In such cases, hard money loans can mortally save you so much time and money, and be the most timely help you can think of. Some examples of this type of situations would be:

  • When you want a loan to finance a big deal that’s coming your way and you are certain about this project being lucrative, but you lack the investment needed to do it.
  • When your business needs to be shifted to another location, where you know you can make better revenues but lack the investment needed to shift your operation of a business.
  • When your business is lacking the needed working capital in order to run a project until completion and you receive your big pay-cheque.
  • When you want to make renovations to your single-family or multi-family property with a hope of being able to derive more rental income.

These are just some examples of this type of scenarios and there can be many such other cases.

The bottom line is: Hard money loans are a big go-to during all the times where you need some short term financing until a more permanent form of financing is arranged for or is made available.  

#5 – When you need to act quickly on a deal/when time is paramount

Real estate investing is so much about making the right decisions at the right time. If you end up making wrong decisions, it means you will be losing out on so much in the game in the long run.

So, when you need to act very quickly about a deal that is about to get closed on proposals in a short window of time, hard money loans are a big savior.

When time is of paramount importance, it is impossible for you to run behind the officials of traditional lending institutions to get your loan approved, wait until you’ve qualified all the conditions thereby and wait again until they get back to you on – if not they’re going to fund your deal.

It is a BIG process and is also time-consuming. In such situations, it makes the most sense to just avail a hard money loan which takes so little time to process and you can confidently move ahead with that golden deal every investor in the city is excited about!

These are the five situations where opting for hard money loans makes the perfect sense. Being one of the top hard money lenders, Houston, TX and one of the most reputed hard money lenders, Illinois.

Private Capital Investors is a place where you’ll find the right kind of loan for your financing needs, along with the timely and valuable suggestions given by our real estate expert. So, write to us today and we shall be glad to help you find the right loan to suit your needs just about right.

Want to learn more? Get in touch with us today.

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