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How Hard Money Lending Is Changing the Real Estate Game

When looking for a home, most homebuyers, particularly first-time homebuyers, will be advised to first secure a promise of a loan from a traditional mortgage company. Basically what this means is that a bank or other financial institution takes a quick snapshot of your finances and estimates how much they will lend you. There are issues with this, as the actual borrowing process can take much longer, and financial speed bumps can cause a drop in actual funding they are willing to give.

With a hard money lender, the borrower’s financial situation is not so much a concern as the potential of the property. This comes in especially handy for a buyer who is interested in “flipping” houses or investing in properties to be rented as apartments or office spaces. To understand how direct lenders have become a huge part of the real estate business, see below.

More houses are being flipped each year than you think. Data collected from a study showing houses that were sold twice within a 12-month period showed that somewhere around 160,000 single family homes fell into this category in 2016 alone. With the housing market plummeting in the early 2000s, foreclosure is on the rise making it easy for investors to strike.

However, as any experienced investor will tell you, you have to strike while the iron is hot. The need for quick financing during a flip is often the difference between getting a great property and an ok one. Hard money lenders come in handy here by offering to finance at a slightly higher interest rate in as little as a week, without having to jump through all of the financial proof hoops.

Higher risk equals higher reward, but only to the investors. An experienced flipper knows that property acquired that just needs a few minor facelift changes like staging or paint is going to be too expensive to buy and not get much on the return. The properties that will end up gaining the most are the ones that need major updating and renovation work, but with the right people can offer a much higher profit on return. A traditional mortgage lender may see this as a terrible investment as an inspector’s report may show significant damage, and refuse to fund.  However, a hard money lender sees the property for what it could be, not what it is.

In the residential areas, hard money lenders can offer bridge loans to those who need to move quickly for work or school situations and haven’t had time to sell their current homes or offer commercial building loans for those that are looking to take advantage of the rise in renters expected in 2019. Whatever the reason, direct lenders are becoming a huge part of the real estate game, and those looking to invest or buy a home should know that they are an option.

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