Why Hard Money Financing is an Option for Investors

Why Hard Money Financing is an Option for Investors

Every investor must start investing somewhere.  If you are like me, you likely purchased a program, saw an infomercial, or went to a seminar and saw the great potential real estate can offer you.  You discovered that you can change your life with real estate investing. 

Investors often start with a “quick” cash method to “get money coming in.”  This quick cash method often involves starting their real estate investing business with a wholesaling technique, such as assignment of contract, double closing, or even bird dogging.  However, if you are like me, you have the goal to get into purchasing properties to rehab and then sell on the market for a significant profit.

As investors begin they may feel that investing in buy, fix and sell properties is out of reach for them.  However, it does not have to be.  Hard money financing can provide an opportunity for you or any investor to begin purchasing properties to repair and resell.

Hard money financing has a stigma that comes with it, which is that financing is extremely costly and extremely dangerous for an investing business.  Though it is true that hard money financing does carry with it a 12-18% interest rate, it is very important to understand that the financing obtained through a hard money lender is likely only going to be used for three to six months.  Hard money loans are short term loans; you want it that way.  It is also important to understand that you can, and should, deduct the costs of a hard money loan in your offer formula.  Deducting the costs in your formula helps you afford the financing and still make the profit you were hoping to make.

If you use a creative hard money lender, you can potentially get into properties with little out of your own pockets.  If you account for the additional costs of the lender you can still purchase real estate, even in the beginning, to fix and resell and, the best part, make far more money than you would likely make wholesaling properties.