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.