Why you need a hard money lender to be a successful investor?

Posted August 24th, 2010 by dohardmoney.com

If you want to excel yourself in one of the most flourishing businesses of real estate investments, you need to understand, learn and adopt a few very important things. Such as working for a while under an experienced real estate investor, learning business tactics, making contacts in this business domain and understanding Hard Money Lending. Finally, you will start working on your own infrastructure for setting up your real estate investments office. And then you will own your business of real estate investments. I know it is not as simple as its description over here is but the question arises for hard money lending as why it’s needed for a successful real estate investment business.

The first thing comes in mind is one would want to pay for more expensive money at a more expensive rate, when he could go to bank. Also what is the rate difference among conventional loan which one can get for five, six or seven percent and hard money loan that is going to range between 15 and 18%. And why there is a big difference in interest rates of these two money lending institutions.

The most important reason for which a real estate investor needs to choose hard money lending is that conventional money lending institutions like banks won’t lend on properties from which you can make more money in lesser time. If you are looking to buy a property for rehab and sell it for a profit, traditional lenders aren’t going to lend Rehab Loans on such type of properties is just the bottom line. Because traditional lenders have paper which they want to resell and if they can’t resell those papers to Wall Street then they are not going to write it even if they know that they can hold the paper meaning hold is on books and service and collecting the payments and doing such types of stuff themselves. They simply don’t want it because if they ever face a financial crisis or shortening of money, they want to sell that paper to a third party or to Wall Street so they can recapitalize. The concept of recapitalizing means that they are selling their paper so they can get cash back in their pocket so they can go and do new loans.

Now it’s quite comprehensible why you need a hard money lender, because nobody else is going to lend you rehab loans for property you can make money on. If you are going to buy properties that you want to rehab and resell for a profit, a hard money lender is going to be the best friend. Now why do you pay extra when it comes to a hard money loan? And the reason is because hard money lenders are going lend you on the basis of your asset. If you are a real estate investor there is greater risk and it is speculative investment for a hard money lender. You are hoping that things work out but you may not do what you are supposed to unlike a homeowner that has a job, he gets qualified and is going to live in the property.

These are some of the reasons why you are going to see some pricing difference between these two. Again when it comes down to why you need a hard money lender it is quite simple because no one else is going to lend to you and if you want to be a successful fix and flip real estate investor, a hard money lender is going to be your best friend. For learning more tactics of real estate investment business and pros and cons of hard money lending read our Hard Money Lending Blog.

The Article is about the importance of hard money lending in the process of real estate investments especially when its the time for real estate investors to take loans for rehabilitation of properties.

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