Given the current market volatility, traditional and large lenders are becoming more selective in lending money to real estate investors. This trend has created a gap in the lending market and presents opportunities for alternative financing such as hard money. Hard money, also known as private money loans, is a type of lending that uses private investors to fund fix-and-flip projects and commercial properties.
Hard money loans are generally short-term loans with higher interest rates than traditional bank loans. This is because hard money loan rates are dependent on the risk involved, and due to their associated higher risk compared to traditional lending, interest rates often range from 8% to 16%. However, hard money lending is attractive to many real estate investors as it provides quick access to funding that may not be available from traditional lending sources.
Historically, hard money lending has been used in real estate investing for many years as an alternative to traditional financing. It is becoming an even more attractive option as traditional sources become more restrictive in lending money as a result of the current market volatility. In the years to come, we predict hard money will continue to rise in popularity as investors seek out alternative financing options.
When working with hard money lenders, investors should understand that hard money generally has a lower loan-to-value ratio (LTV) than traditional lenders. A common LTV for hard money loans is 70%, which means that the lender will only provide up to 70% of the property's value. This is because the high risk associated with hard money often requires lenders to have an equity position in the investment.
As the traditional lending market continues to tighten, hard money lending presents a viable option for real estate investors looking for alternative financing. It is important for investors to assess the risks involved and to weigh the higher interest rates associated with hard money loans versus the overall financial benefit.
In conclusion, the future of hard money looks bright. As traditional lenders become more restrictive in lending money to real estate investors, hard money lending offers an attractive alternative. With its flexibility in funding and ability to provide quick access to capital, hard money will continue to rise in popularity in the coming years.