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11 Advantages Why Real Estate Investors Need Hard Money


Hard money is a term primarily used in the United States and Canada. It has been around since the 1950's when there were drastic changes to loan financing. It is a powerful tool to use and consider to gain wealth as a real estate investor.

Let's focus on why you need hard money if you're a real estate investor vs a traditional conventional bank loan. The following presentation is based on non owner occupied properties.

Here are just 11 advantages and there's so many more...

Interest only payments
Fast loans with no income documentation
No limit to amount of loans you can fund
Bad or little credit is not an issue
No red tape
Take title in LLC
The property can be in bad condition
The loan can be based off of after repaired value (ARV)
No limit on quick flips
Fast closings
So let's make the case for the 10 reasons investors need hard money.

Leverage ~ it's all about controlling an asset such as an income producing property with the least amount of capital outlay. In Southern California where I'm located, you can acquire properties between 20-30% down and keep the rest of your money for doing rehab or purchasing more properties. The return of investment is much higher based on the small amount of down payment vs paying all cash. Example... you acquire a home for $300,000 for cash and net profit of $60,000 after all expenses and closing costs your return would be 20% ROI. On the other hand, if you purchase the same property with 30% down of $90,000 your ROI is more than triple at 66% ROI or 330% greater ROI than buying all cash. If there were no other advantages besides leverage, it is a compelling reason why investors should use hard money.

Interest only payments ~ Cash flow preservation is king. No need to pay down principal like conventional loans so your payment is the minimum required to control the asset, which makes cash flow more manageable if you are flipping homes or fixing up properties and then refinancing as a rental.

Fast loans with no income documentation ~ No tedious tax returns, W2's or pay stubs required. The focus is on the equity vs. your income. Conventional loans are full documentation which is more prohibitive to be approved.

No limit to amount of loans you can fund ~ Conventional loans allow you to have up to 10 loans that will show on your credit report. Hard money loans do not report on your credit report and thereby have no limits on how may loans you can do.

Bad or Little credit ~ Credit scores don't make a difference with hard money thereby making it more promising to do more deals. On conventional loans if you're score is below 640 you cannot purchase an investment property. If that is the case & you have a great property you can be losing out on tens of thousands.

No red tape ~ No banks or committees to approve you. Very fast decisions on approval based on equity and a drive by or appraisal as long as there's clear title.

Take title in LLC ~ Unlike conventional loans that require you to take title in individual names, hard money allows you to take title in entities such as LLC, corporations, even trusts. Shrewd investors take title in LLC's.

The property can be in bad condition ~ Conventional loans will not fund if the property is missing items such as flooring, a toilet as an example. Hard money is only concerned with equity or value of property less loans against it.

The loan can be based off of ARV ~ Conventional loans will lend of the lesser of purchase or appraised value. With hard money many investor will lend off of after repaired value which requires a smaller down payment, in many cases only 10% down.

No time limit on quick flips ~ Conventional lenders and banks want long term loans and are not designed for investors that purchase and flip for quick profits. Hard money lenders have no concern if you buy and re-sell the property the following month and repeat the process, as long as you make the payments it is a win-win relationship.

Fast closings ~ Conventional loans with all the regulations take 30-60 days to close. Hard money can close in as little as 3 days.

Final thought...Consider hard money as a silent partner that will cost you much less than partnering with someone that you have to split the profit.