Every real Estate Investor has many decisions to make. One of them is whether to pay cash for a property, get a mortgage, or use Hard Money.
Let's start with the two obvious ones. Cash sales are just that. The investor will pay cash (out of their pocket) to purchase the property. This is the fastest way to buy a property (usually a week). All that needs to be done is to make sure that the title work for the property is clear and all taxes, association dues, etc. are current.
Mortgages are the longest way to purchase investment properties. The draw back is this...mortgage brokers are imploding at an alarming rate. The refi boom has left these lenders and brokers sweating at night.
The third option, and one that is not really too well known, is hard money. Hard Money is "a short-term bridge loan. Hard money loans are backed by the value of the property"*.
There are two ways to receive Hard Money...up front or draw.
Up Front is jsut that. If the investor is looking to purchase the property and do some rehab, then the investor receives the rehab money at the closing table...all at once.
The Draw System is different. The purchase price of the property is funded at the closing table. The rehab costs are incurred by the investor and reimbursed by the hard money lender as each part of the rehab is completed.
The Pros and Cons of Hard Money:
Pros: 1) Quick Funding
2) Value of Property outweighs Credit Worthiness
Cons:
1) Higher Interest Rate
2) Short Term Loan
So, why would anyone want to use Hard Money to purchase an investment property? Usually, the credit worthiness is of lessor importance than a mortgage, and the investor does not have to utilize their own cash up front.
With the quick decline in Mortgage lenders and brokers, Hard Money is quickly becomming the way for some investors to finance their deals.
For further information, please feel free to contact Shawn Dawson at 248-692-1100 ext. 227.
* Definition taken from Answers.com and Wikipedia.com
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