May 18, 2024

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5 Reasons Hard Money Is Attractive to Property Investors

Actium Partners is a Salt Lake City, UT hard money lender active throughout the state. The majority of the loans they make go to property investors. Although the firm does lend to businesses from time to time, property investors are their bread and butter. There is good reason for this.

Real estate investors have unique needs due to their business models. If it were not for hard money lending, many of them wouldn’t be able to fund the projects firms like Actium Partners tend to fund. Real estate investing would be a completely different enterprise if investors had to rely on traditional bank financing.

Here are five reasons real estate investors find hard money attractive:

  1. 1. Fast Approval and Funding

If a group of property investors had to cite the number one reason they appreciate hard money, many would talk about how quickly loans can be approved and funded. Speed is a hallmark of hard money. It is also one of the most important factors in proper investing. It wins the day more often than not.

A bank could take several months to approve a property loan. In stark contrast, a typical hard money lender can offer approval in just a few days. Under certain circumstances, 24-hour approval is also possible. And once a loan has been approved, a lender can generally get it funded within hours.

  1. 2. Very Little Paperwork

Hand-in-hand with approval speed are little to no paperwork requirements. Real estate investors do not have to submit reams of paperwork covering everything from profit and loss statements to bank records. Hard money lenders do not need all that paperwork because their approval process is based mainly on valuing the collateral being offered to back the loan.

  1. 3. Loan Approval Basis

Speaking of collateral, it is the basis for hard money approval. In other words, firms like Actium Partners don’t dig into the borrower’s financial details. They don’t consider credit score, credit history, debt-to-income ratio, or any of the other things banks normally look at. Hard money lenders are only interested in collateral. If collateral justifies the loan, all is good.

A property being acquired normally acts as the collateral for a hard money loan. However, that does not have to be the case. Lenders can accept any type of collateral they believe is valuable enough. It is up to each lender to determine what constitutes acceptable collateral.

  1. 4. Short Loan Terms

Next up, property investors appreciate hard money because of the short loan terms that accompany it. That seems odd to the rest of us, especially since we tend to have mortgages lasting anywhere from 15 to 30 years. But to a property investor, a shorter term is more beneficial.

When you look closely at how interest rates and loan terms affect the cost of borrowing, you discover that loan terms have a greater impact on the final number. So even at a higher interest rate, a borrower will pay less on a one-year loan as compared to a 15- or 30-year loan. Paying less overall makes property investors happy.

  1. 5. Maintaining Cash Flow

Last but not least, hard money represents an efficient way for property investors to get new projects off the ground while maintaining cash flow. Because hard money lenders usually don’t offer construction loans, investors need cash on hand to address repairs and upgrades. So hard money finances property acquisition while cash reserves take the place of construction loans. It all works out quite well.

Hard money is attractive to property investors for many reasons. Those listed here are the most commonly cited reasons.