Investors are constantly on the lookout for financial solutions to develop their property. Borrowing money from a hard money lender is a popular option for those finding it difficult to get finance to develop real estate. However, before you start speaking to a hard money lender, you need to understand the pros and cons of taking the loan.
If you don’t have a good credit rating at the moment, getting approval for a traditional loan for property development might seem impossible. When applying for a hard money loan, you won’t be dealing with traditional banks; instead, you will be borrowing from an individual or group of lenders. You won’t have to provide them with a lot of information to get the loan approved, and they won’t be concerned about your poor credit score, or if you are up to your eyes in debt.
Hard money lenders are focused on the value of the property you are developing. The property will be used as an assist to help you get the loan approved, not your current financial situation. If you don’t want to use the property as collateral, speak to the lender about your options. They may accept residential property or other assets you may have as long as these assets are in your name. Hard money lenders are known to be more flexible than traditional banks, so organise a meeting to see what options are available.
Borrowing from a hard money lender might seem like a fantastic opportunity for those in need of a quick injection of cash to continue developing a property, but unfortunately, there are some disadvantages that you want to think about before going ahead with the loan.
The interest rates when taking out a hard money loan tend to be a lot higher than that for traditional loans. These high-interest loans can put a lot of people off, especially those who need the money to develop a property. If they plan on selling the property once the development has been completed, the interest rates might take a big chunk of your profits.
Taking a traditional loan is risky, but not as risky as borrowing money from a hard money lender. If you think you may not be able to pay back the loan over a short period, you should look for an alternative.
Source: Tax Guru