If you are having hard financial times and want to invest in a real estate project, then hard money lenders might be for you. Here’s what you need to know when you decide to proceed with this type of lender.
Working outside the traditional lending industry is a hard money broker. This broker has a pool of money that he wants to earn a higher than normal interest rate return on the money. The lending decision will be based on the preference for risk and the ability to do the loan. If the people have poor credit or their debt ratios are high, they can still secure a hard money loan.
Compared to conventional banks, loans from hard money lenders often come with higher than normal interest rates. These rates can run anywhere from 7 to 15 percent. Investors often use this type of loans as it is easy to qualify for and provides quick funding. In addition, brokers such as those at Level 4 Funding have put together a large rolodex of private investors that specialize in various types of real estate investments. These include numerous types of properties such as single family and multi-family units, offices, retail space, hospitality sites, storage facilities, assisted living communities, mixed-use buildings and warehouses.
When making payments, hard money lenders may charge you interest only. In these circumstances, the payment on the principal will be deferred until you flip the investment. This will give you a lot of flexibility.
End of Loan Balloon Payment
If your loan is setup as an interest only loan that means that at the maturity of the loan, in most cases 12 months or less, you will be faced with a balloon payment. If you were planning on refinancing, selling the property or paying it off, you will have to do this at the same time with the maturity of the loan. This illustrates the importance of planning before you become an investor in real estate.
With the proper forecasting, you can avoid penalties and proceed with confidence.
Before you proceed and begin your project, you will need to forecast your cash needs and cash flow. If you get into a tight cash position, and if you are late on a payment to hard money lenders, you may be hit with a very stiff late fees. It’s also important to be aware that a number of loans carry pre-payment penalties. This means that if you come up with a windfall and are able to prepay your loan, you’ve agreed that the lender can penalize you for early payment and not paying the loan for the entire term. Lenders often try to squeeze all the money they can out of a loan. So, before you sign on the dotted line, make sure you understand every item on the term sheet. Consider bringing it to your attorney and letting them review it before you proceed.
And always work with good-standing firms. At Level 4 Funding we understand that your success is our success. We do not charge pre-payment penalties and offer residential terms as low as 7.99% APR with commercial terms starting at LIBOR+350. Call us today for a no-obligation quote.
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.