When you want to achieve real success investments in real estate can provide the financial stability you want. Realistic investors start small and pay off a significant amount of their initial mortgage before buying a second property. When you pay off your mortgage, you accrue equity in your home. That equity provides collateral for future property purchases.
Free Real Estate Courses
If that all sounds complex, consider taking an Introduction to Real Estate course before buying your next property. You don’t have to be a real estate agent to take classes like this, which many colleges make available online through platforms like edX and Coursera. Auditing these courses costs nothing, so an investor can develop a strong knowledge of property investment and management before spending any money.
Funding Your First Investment Purchase
Of course, the home you live in counts as a real estate investment. For the purpose of explaining realty investing and real estate lending, the second property an investor purchases launches them from homeowner to realty investor. Many individuals turn to hard money loans for this purpose.
Hard Money Loans Defined
The rich get richer and the poor simply wish that they could do the same.
The reality of wealth in America, however, is you simply have to have money to make money.
For the property management industry, for instance, being able to snatch up the properties that you want when they become available is often determined by if you can access the cash you need when you need it. And while traditional loans may work in many environments, the property acquisition and management world often requires finding money in less traditional ways.
How Does a Hard Money Loan Work for the Borrower?
Some real estate investors use hard money loans to help them acquire more properties even while they are still making payments on current properties. In fact, the 30% to 50% of equity in a current property is actually the collateral that is used for the new loan. Available in sometimes as fast as seven to 14 days, hard money loan rates are often higher than typical real estate loans. The fact that the money is made available so quickly, however, is enough of an incentive for borrowers being willing to pay the hard money loan rates of 15% to 18% or even higher.
How Does a Hard Money Loan Work for the Lender?
The fact that hard money loans are made based on a substantial amount of equity in an already owned property means that the lender feels protected in the new financial contract. If, for instance, the borrower is unable to pay back the hard money lender, the equity in previously purchased property can be claimed.
In many of these loans, however, the lender is not concerned because the property that is being purchased may immediately provide the buyer with rent and leasing income. This income can then be used to make the hard money loan payments. In the best case scenarios, these borrowers can make further purchases with hard money loans secured by equity in the most recently purchased property.
Typical bank loan borrowers interested in finding a business loan need to have a successful record of two years in business. Additionally, they must have at least $250,000 of annual revenue, have good personal and business credit, and have a positive cash flow. For some real estate investors who are attempting to enter the market in a faster pace, however, these typical loans do not work. For these borrowers, a hard money loan may be the best answer.