The house was described on a for rent by owner website as a “decaying beauty.”
The description was accurate.
It was apparent that the large three story home in Shreveport, Louisiana, was once a real beauty. In fact, it was surrounded by many beautifully updated homes. This particular piece of property, however, was struggling. More than 100 years old, the brick home had some major issues. The outside foundation appeared to have more than an average amount of issues. Guide wires and cement points attempted to reinforce the integrity of the home, but it was apparent that some major shifting had occurred. After taking only a few steps into the grand foyer, in fact, you could see that there were places were the insulation was exposed as the floor and the walls had apparently separated. Drafty windows throughout the home made the gas furnaces less threatening, but the heating system was wasteful and ineffective.
After spending a little more time in the home you also noticed something fairly disturbing. Although it may have been an interesting story of its past, red spray paint was found on several parts of the wood floor and up the first flight of stairs. These faded, but still present, red marks were also on some of the walls. Perhaps the work of vandals, these paint marks were not every where, but they were frequent enough that you could hardly enter a single room and not spot them.
This home was a perfect weekend rental for the large number of family members who made this trip to see your college daughter’s gymnastics meet, but it was hardly, as your nephew and sister-in-law pointed out, a possibility for an investor who would be working with a hard money lender. The renovations and repairs would indeed be too expensive and time consuming to risk the high interest rates a hard money lender provided.
Are You Looking at Making Some Money Flipping Homes?
Private hard money lenders provide nearly immediate funding for buyers who are looking to take advantage of a low selling price on a home or property that needs renovations and repairs. With an aggressive construction schedule, buyers hope to take advantage of the immediately available funds to purchase a property that is listed at an affordable price. They also expect, however, to make sure that they complete the repairs and resale the property before having to pay months of high interest loans that also come with the financing that is available through hard money lenders.
Hard money loans serve a specific purpose for some very specific buyers, but it is important to make sure that all of the fees and regulations are explained and understood.
Consider some of these facts and figures about hard money loans and how they work:
- Hard money loans offer higher interest rates and lower loan to value ratios. In fact, hard money interest rates often are offered at 15%, 18% or even higher.
- Most hard money loans are secured by a property that has as much as 30% to 50% equity. This means that the property was likely purchased at a price significantly below its original value. It also means that the investor is well protected.
- In an ideal situation for a borrower, the duration or payment period for a private loan is much shorter when compared to a traditional loan, which can usually go from one year to 20 years. Private hard money loans, on the other hand, can only be granted with duration of up to five years. Many borrowers hope to have the loan be even shorter than that, sometimes as short as two or three months.
- Investors who are looking at hard money loans are often looking for a loan that will provide the money very quickly, In fact, some hard money loan approvals only take seven to 14 days to process.
- A typical bank loan borrower who wants to take out a business loan often has to have been in business for two years. They also must have at least $250,000 of annual revenue, good personal and business credit, and be cash flow positive. Hard money loan qualifications, however, are not the same, enabling investors to get the quick cash that they need.