Hard money is one of the most popular sources of funding for real estate investing deals. Until recently, hard money used to be quite easy to get as long as your property met the lender’s underwriting requirements.

Recently most hard money lenders have tightened their lending requirements, but these loans are still much more easily available than regular loans.

Should hard money be a main source of financing for your real estate investing deals?

What is hard money?
Hard money lenders usually lend money secured by real estate. Most hard money lenders do not need the borrower’s credit to lend money, but depend on the collateral only.

Even though recently a lot of hard money lenders are including some credit rating in their under-writing procedures, they still put less emphasis on credit of the borrower. However, most hard money lenders will require that the property has at least 40% equity or more to qualify.

Most hard money lenders will make the money available in a few days if necessary.

Hard money interest rates are therefore higher than traditional loans. You should expect to pay at least 18% interest plus points.

Hard money payment are interest only, meaning the principal balance remains the same until you pay it off. The lifetime of a hard money loan is rarely more than 6 months.

You are unlikely to get a traditional mortgage to buy a rehab property to fix and sell. Hard money would be perfect for such a deal.

Once you fix it, you must make sure your exit strategy involves paying off the hard money loan in a few months.

In the current market where it is getting harder and harder to sell a house, it might be a risky venture to hope you will sell the property in good time to pay off the hard money loan.

You have to pay high interest for every month you keep the property under a hard money loan, eating into your profits.

When you buy properties on terms, a hard money loan would not work.

You will need to identify a reliable hard money lender in your area that specializes in funding deals like yours.

A relationship with a good hard money lender would serve your real estate investing business well.

Usually you will need to show that your exit strategy is viable. A hard money lender’s worst nightmare is an inventory of property sitting in their balance sheets tying up their cash.

They will need to see an exit strategy that gets them their money back in a few months.

Present as much helpful information as possible, such as similar deals you may have done previously, potential buyers, rehab crew, your experience as an investor, etc. This will cement the deal and make them more comfortable to lend you money.

Ultimately, your need to use hard money must be determined by the property and an exit strategy that can be realized in as little as 3 months.

No matter what type of deals you have, selling your houses fast is important to the success of your real estate investing business. Find out how an interactive real estate investor website that also builds your buyers list can help you sell your houses fast even in a depressed real estate market.