Real estate investors love hard money lending.
Hard money lending—also known as private lending—provides access to uniquely structured loans that investors cannot get through traditional means like banks or credit unions.
This structure is designed to accommodate the distinct needs of real estate investors, including quick closing times and asset-based approval.
If you’re interested in securing a fast, flexible source of financing for your investment needs, read on for the five most common reasons people choose hard money loans.
Get started with Park Place Finance.1. Quick access to funding
Fast access to capital is one of the primary reasons why real estate investors turn to hard money loans.
But how are private lenders able to offer quicker access to cash than other lenders?
Streamlined process
Private lenders have a more streamlined approval process than traditional lenders that focuses more on the collateral (property) than on the borrower’s financial history.
Traditional lenders often have extensive and time-consuming approval processes involving income and employment verification, detailed credit checks, and strict property requirements.
Years of investment lending
They also often bring years of real estate investing and lending experience to the table, which allows them to more rapidly identify the types of deals that should be funded.
These factors contribute to faster approval and funding—which is ideal for the types of projects that investors execute.
2. Fixing and flipping homes
Fix-and-flip investment strategies involve an investor purchasing a distressed or undervalued property, renovating it to enhance its market value, and selling it for a profit.
The goal is to make improvements that boost the property’s appeal and overall value.
Hard money loans are ideal for fix-and-flips because they can accommodate the unique characteristics of this type of project, including:
- Fast financing so investors don’t miss out on time-sensitive opportunities
- Short-term loan that suits the project timeline
- Lenders focus on factors like after-repair value (ARV) that take into account the planned renovations and updates
- Lenders don’t have to follow strict traditional requirements regarding property conditions
Traditional lenders often are unable to supply short-term financing needs because they are seen as higher risk than long-term commitments.
Hard money lenders understand the unique nature of fix-and-flip investments and have the freedom to structure loans that align with the investor’s strategy and result in a quicker ROI.
3. Long-term investments
Hard money loans aren’t just for short-term investments.
Private lenders also can structure loans for long-term investments such as rental properties.
Hard money loans for rental properties
Long-term investments in real estate typically involve purchasing non-owner-occupied properties to hold them for an extended period.
Investors who pursue long-term rentals build wealth through rental income and property appreciation, and also often can access tax advantages.
Traditional lenders view non-owner-occupied properties as higher risk, so borrowers face stricter lending requirements.
Hard money lenders use a variety of factors to evaluate non-owner-occupied properties and their potential for generating income, including:
- Property value
- Location, market trends, and market demand
- Borrower’s experience and exit strategy
- Debt service coverage ratio (DSCR)
- Property condition
- Loan amount
DSCR loans for rental properties
DSCR loans are specifically structured for non-owner-occupied properties generating rental income.
This ratio assesses the property’s ability to cover its debt obligations with the rental income.
For example, a DSCR above 1.0 indicates that the property generates enough income to cover its debt payments.
DSCR loans do not take into account your other debts beyond the principal, interest, taxes, and insurance (PITI) payment of your loan.
This ease of approval makes DSCR an ideal option for borrowers who are self-employed and report very little income.
4. New construction projects
Private lenders simplify the construction process for investors, offering a loan product that covers:
- Ground-up construction
- New construction projects
- Mid-construction projects
Construction loans cover the following:
- Land acquisition
- “Soft costs” such as architectural, legal, and permit fees
- Materials
- Labor
Construction projects require a substantial financial investment and coordination to execute.
The coordination of these projects involves deadlines and milestones that must stay on track to avoid costly delays—and timely draws are a crucial aspect of completion.
Private lenders like Park Place Finance have a straightforward draw process that helps investors keep their projects on track.
5. Time-sensitive opportunities
Hard money lenders can help investors quickly secure financing for time-sensitive opportunities that require immediate action.
This aspect of hard money lending gives investors a significant advantage in the market, allowing them to capitalize on ideal conditions or avoid potential losses.
Let’s explore the types of time-sensitive opportunities real estate investors experience.
Distressed properties at reduced prices
Successful house flippers put in a significant amount of research and work to determine which projects offer the best price and maximum profitability potential.
At the same time, prime opportunities in the form of distressed properties, short sales, or auctions pop up quickly with tight timelines.
Private lenders can offer funding for these types of projects in days, rather than weeks or months like traditional lenders.
Bidding wars
There are most likely going to be multiple eyes on the same good deal.
Hard money loans offer investors a competitive advantage with rapid funding, allowing investors to confidently submit offers and secure properties without delays.
Project completions
Timing is crucial for construction projects—and the delicate timing relies on funding.
Hard money loans offer streamlined access to capital throughout the project, ensuring that projects commence on schedule, meet all deadlines, and are completed promptly.
Private lenders also often can accommodate project extensions as long as payments are on time and the project is moving along as planned.
Explore your hard money loan options with Park Place Finance
The Park Place Finance team is ready to help you with your next investment project.
When you choose to work with us, you can rest assured that a team of real people will be dedicated to funding your deal as quickly as possible.
We offer the following loan options for investors:
- Fix-and-flip loans
- DSCR loans
- Construction loans
- Bridge loans
We lend nationwide—and have funded over $1 billion in loans over 17 years of business.
Fill out our online form to start the loan process, or call us at (866) 407-1599 to connect with an account executive now.