Real estate has consistently been one of the most reliable investments for generations. Whether you are talking a part-time investor with just one residential property or an institutional investor with a portfolio of hundreds of properties, real estate almost always makes money over the long term. Getting started as a new investor is generally the hardest part.
Are you looking to get into real estate as a new investor? If so, have you investigated financing? There are lots of options to choose from, ranging from small business loans to peer-to-peer lending. Whatever you do, don’t fail to look into hard money. Hard money loans are used more frequently than you might imagine for securing real estate deals.
Hard Money Overview
Much of the misunderstanding about hard money loans originates from a lack of knowledge. People just don’t know what hard money is. If that’s you, you’re in luck. You are about to learn what a hard money loan is.
Hard money is money loaned by private lenders on a short-term basis. Loans can be structured very similar to small business loans, or they can be offered as bridge loans or real estate investment funding. Regardless, a hard money loan is not a 30-year mortgage. It is a short-term loan with a term of six months to a year.
The money such loans provide is called ‘hard money’ because it is money put up by the lenders themselves. Unlike banks that rely on deposits to fund their loans, private lenders are putting up their own money. There are no depositors helping them along. Money flows directly from their bank account to yours. You are essentially getting hard, cold cash straight from the lender who owns it.
Loaning on Property Value
Now that you understand hard money a little bit better, let us talk using hard money loans to get started as a real estate investor. The first thing to understand is that hard money offered for real estate investment is offered against the value of the property you are trying to purchase. Depending on who makes the loan, you might also have to offer another piece of real estate as collateral.
Utah based Actium Partners says that hard money lenders are more amenable to helping real estate investors because they always have the collateral to fall back on. They also explain that the value of the collateral makes up the single biggest factor in determining credit worthiness.
As long as you have collateral to offer, you stand a good chance of securing hard money loans for your real estate investment. The only question is one of finding a hard money lender you can work with amicably.
Start Small and Then Grow
As a new investor, the last thing you want to do is get bogged down with so much debt that you put your own finances at risk. So start small. Acquire your first property, renovate it, and get in on the market. Let it start generating regular income before you begin looking for that second property.
The goal is to use all of the rent from that first property to get your loan paid off. Then you can use the value of that property to secure additional funding. Each property you add to your portfolio gives you another asset for securing more hard money investment down the road.
It is possible to get into the real estate market without being independently wealthy. Thanks to hard money and lenders willing to loan it out, real estate investing is open to even middle-class investors with moderate incomes.