Hard Money Loans - The Pros and Cons

First and foremost, it is important to realize that hard money loans are equity based lending. They give funding based upon collateral and not upon the borrower.

The most important reason behind getting a hard money loan is to get an easy investment without much hassle. It is called hard because it is given on hard assets.

A property is considered to be good enough if you have good profit margin in it but if your property is doubtful like having some serious damage. If that's the case, then you would find it very difficult to get a hard money loan for it.

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Like everyone in the business, hard money lenders also want to make money. They want to see their margin that whether they can make profit on that particular property or not.

Therefore, it is important for you to realize that you shouldn't get emotional about a property because that's the worst scenario. If you get emotionally attached to the property, you would not like to listen anything against it but the final decision has to be made by the lender as he is giving you the funding.

As far as traditional lenders like banks are concerned, they are only concerned about the individual and so, if you are buying a property for $75,000, they will give you $75,000 happily.

On contrary, hard money lenders only care about the property. If the deal is good, they will lend you around $45-50,000 on it as they would like to keep their margin. But their process would be quick, so you don't end up losing the property.

That's the whole situation behind hard money lending. Private or hard money lenders are looking for good deals.

The reason why people prefer hard money loans is because it is very quick and fast. It doesn't ask for lengthy procedures or documentations. They just send some individual evaluators to the property and based upon their findings, decide whether to lend on a property or not.

You must be wondering, how you could decide whether the property is good or not before coming to a hard money lender.

First thing you can do is draw comparables by looking at three or four actives and solds in the immediate neighborhood. You can check the similar square footage houses in the vicinity.

Check the ones, which are least expensive. You can check the houses which have been recently sold or are currently available for sale in the market.

There is another situation too. If you are looking at a house, which need some repair and you are interested in doing that. Then you need to draw comparables of those houses, which has been fixed up.

But please make sure that you have a property in hand. Don't waste your time in imaginary or what-if situations.

You should have a property to talk about; otherwise it's just a waste of time and money.

If you have a good property, you will get funding. That's for sure. The amount of money could vary but as far as your deal is good, you will get the financing.

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