Before you go into any business venture, you must understand all factors, assets, and consequences. We have debunked five myths about hard money lenders you’ll need to know when you start your real estate business.
Hard Money Lenders are Loan Sharks
Many people compare hard money lenders to loan sharks, which simply isn’t true. A loan shark is essentially a person who offers loans at immensely high-interest rates and may be known to harbor criminal connections upon failure to meet their strict return policies.
Hard money lenders have become mainstream in the real estate business, earning support from large billion-dollar companies.
They often loan their own money, so they may perform research in the market to determine if they’re able to lend you your requested amount. If they can’t, they may decide to pass on your loan request.
Although these lenders aren’t as risky as they seem, it’s important to do your homework and understand what you’re going into before signing any contract.
They Only Benefit Desperate Borrowers
Hard money lenders are generally more lenient in their terms compared to traditional bank loan requirements. However, this doesn’t mean hard money loans are only available to desperate borrowers.
A hard money loan may benefit you if you’re looking for a quick turnaround time and flexible terms.
No Documents are Required To Get Approved
Many people assume hard money lenders don’t require documents due to their reputation. However, this is far from the truth.
The loan itself is well-documented and transcribed, so the agreement between the lender and borrower is protected.
As with any loan or business transaction, you’ll need to provide sufficient documents that correctly identify you and legally bind you to the loan.
Hard Money Loans Are Expensive
Although hard money loans are typically more expensive compared to conventional loans due to their higher interest rates, hard money loans can save you money in other ways. They have quick approvals, shorter-term lengths, and no prepayment penalties. Therefore, a hard money loan may be your best option for your real estate business.
No Exit Strategy Needed
This myth stems from lenders that may not be trustworthy and don’t want the borrower to have an exit strategy so they can take the property back at a lower price.
An exit strategy is a plan a borrower creates with their lender to pay back the loan amount in a certain period. A reputable hard money lender may require an exit strategy because they personally invested in you and bet on your success.
Having this plan is essential; with it, you can prove the strength of your business plan. When you have a solid exit strategy, lenders will be willing to work with you now and in the future.
Many fix and flip hard money lenders can help fund your house flipping business or assist you in your real estate goals. There are many misconceptions around hard money lenders, so it’s essential to understand these five myths about them so you can make an educated decision for your business.