When you put the terms hard and money together you think that it is something that will not be easy to get. Hard money is normally money that is required when things are in dire straights. These are primarily used for commercial properties. There are risks with all loans. That is why it is important to properly research your home or commercial property loans when you need them.
There have been times where, based on credit, we could not qualify for any loans for any type of property. A hard money loan is not necessarily based on credit. The collateral that we would use for this type of loan is the property. This money is normally fronted by investors and not banks. One of the big differences between banks and investors is that investors already have in mind the amount of money they need to make the deal worthwhile. Don’t get me wrong. Banks make money too. Normally, the investor that gives a hard money loan has a percentage of profit that they need to make. For others, it may be used as a rental property. In this case, the investor is interested in long-term gains.
Hard money loans are also different from the cash for a home sale. In your cash for home sale, you get an offer on your home within 72 hours and close within a month. There are no closing costs, no realtor fees, and no repair costs. However, you will get less than retail value for the home. The investors purpose in purchasing the home is to find an upside and profit from it.
Hard money loans are loans that are sometimes used when a commercial property is in distress. Unlike home loans, hard money loans rely on the potential sales price of a piece of commercial real estate. The potential investor that is considering lending you the money is not going to look at the appraised value of the property. They are going to look at what the future sales price will be if the commercial real estate has to be sold shortly after making the loan. Depending on the condition of the property, this loan will typically be between 50 and 75 percent of the appraised valued of the commercial property.
The toughest part of dealing with a hard money loan is that you have to know if you can turn the situation around in a few months. There has to be a plan of success that will turn the business around in a short period. I do not know if investors want you to succeed or fail. It appears that if you are not successful in utilizing the loan for the success of your commercial property, investors expect to make some type of profit on their end if they have to take over the property.
It seems that hard money loans are fairly easy to get if there is a good chance of profit for investor from equity appraisal. For the business, their profit is based on doing what is necessary to keep the commercial property and paying off the loan. Hopefully, by paying off the loan timely, they are positioned for continued success.