Real Estate Hard Money Loans

Hard money for Real Estate

Real estate hard money loans generally carry much higher interest rates than ordinary residential loans. They also have a shorter payoff time period, usually of six months to one year. They are a type of asset-based loan financing, and are usually not issued by commercial banks, usually issued by private investors.

Since the hard money real estate loan carries such higher interest rates, what are the advantages? Far less questions are asked; your credit rating or FICO score does not matter. A real estate investor would usually turn to hard money loans if they have bad credit. Real estate hard money loans help a borrower avoid immediate foreclosure or a ‘quick sale’ of the property

Real Estate Hard Money Lender

Hard money loans are especially common on properties that banks would usually not be interested in – such as the properties in remote areas or for houses of questionable quality.

To find the best real estate hard money lenders, it is advisable to research potential lenders’ financial backgrounds carefully. As you will borrow from private investors instead of established banks, possible scams are much more likely.

Yet, capital gains should be your least important priority

While those who invest in paper assets profit almost entirely from capital gains alone, that is also taxed income. In real estate, however, with the 1031 exchange, investors can defer taxes on capital gains. This makes real estate a much more powerful investment vehicle than paper assets such as stocks, bonds and mutual funds.

Before you take out any hard money loans, clarify your investment motives. Are you investing for cash flow or for capital gain? Are you trying to make money by flipping real estate? Note that tax laws favor the cash-flow investor.

This may seem counter-intuitive, but the wisdom of it will soon become apparent. Adopting a buy and sell mentality can be very risky, especially with the unavoidable real estate cycles. Capital gains can be tax-deferred, but they remain taxed significantly higher than the other sources of real estate income. The best real estate strategy is actually to buy and hold – it is less tiring and makes you much more money in the long-run; you will also end up working much less as you build up a network of real estate holdings.

What is real estate?

The word real derives from the Spanish word real, which means royal. Real estate thus literally means royal estate. Centuries ago, there were two main classes: the royalty and the peasants. While the kings and queens and the royals owned all the land, the peasants lived on the land. They thus pay a percentage of their crops to the royals as a form of tax. Interestingly, this practice continues even to today – we pay property tax to the government as payment for using the government’s land.

Real estate hard money loans offer a flexible alternative to traditional private money loans. They can create significant leverage, but do use with care!

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