Quick Cash Hard Money Loans for House Flipping

You may be asking yourself whether it is a good idea to use hard money loans for a house flipping business as you strive to expand your project portfolio. As you diligently prepare your expenditure on the project-related costs and work hard to increase the ROI by ensuring that you keep the turnaround times as short as possible, is it only prudent to include loan interest payments towards the cost column of your fix-and-flip project?

Regarding the general business model of house flipping, it should be noted that the decision to use loans will increase or decrease your company’s ROI. In this article, we aim to give the reader knowledgeable details about the subject matter, and at the same time, give the reasons why a hard money loan could be the most suitable solution for investors.

How Does a Hard Money Loan Work?

For hard money lending services, the property that the hard money loans are secured on is what holds value, rather than the credit and financial history of the person who has borrowed. The loan is usually pegged on the value of the property and will have a very short repayment term of either six or twelve months, although some could be extended.

Top 3 Reasons Fix-and-Flip Investors Use Borrowed Finances to Flip Houses

Here are the most sought-after advantages of getting loans for a house flip deal for many investors:

Loan Money May Enable You to Grab The Best Deals

People say cash is king when it comes to the house flipping business. When a fix-and-flip investor is in a hot market, there is no time to wait to get family members, partners, or other private investors to the table to provide the cash to jump on cash-only and auction deals.

An investor who lacks cash reserves to engage in cash transactions is not taking advantage of the opportunity to buy properties whose profit margin is usually higher than that of others. The cash-only seller is usually under duress in selling the property, thus they are very keen to sell it below the current market price. To the fix-and-flip investor, such deals are potentially a big payoff.

Although you may have already amassed sufficient cash reserves to be able to purchase and rehabilitate your next investment property, by joining with private hard money lenders who are capable of funding fix-and-flip investment transactions within a relatively short amount of time, you can use your cash reserves with borrowed capital to get additional deals you would have otherwise not been able to get. The leverage benefits can be a good compensation for the cost of borrowed capital in this case.

Fix-and-Flip Loan Services Will Help You Scale Your Business in a Short Period

Use of cash held with borrowed funds can give an excellent outcome for fix-and-flip investors; they would otherwise only be capable of doing a few projects in a year.

Considering the incremental cost of interest and fees, you can discover that your per-project ROI will be reduced when you borrow capital. But in various initiatives over the long run, you can have much more ROI. Here is an example:

Tomy and Sons Company bought 2 houses last year with the cash reserves of the company amounting to 600,000 dollars, renovated them, and sold them at a net profit on the flip of 45,000 per property. The total net profit amounted to 90,000, and it works out to be 15% ROI.

Due to the hard money loans that the company used to buy 9 homes worth a total of $600,000, Tomy and Sons capitalized on the bargains it would not have gotten a chance to get previously. They averaged at 35,000 profit per flip. Their net profit was $315,000 or a 52% ROI.

Securing a Loan for House Flipping Allows You to Freely Spend Your Money Elsewhere

Real estate flip financing allows you to keep your money to spend on other things.

The nightmare of all real estate investors is to realize that they have depleted their cash resources in many deals. Then there occur some surprise operating costs which they could never anticipate.

Fix-and-flip loan is a fantastic method to retain more of your cash reserves and have borrowed money work hard. The price of the borrowed capital and interest of the loan might seem a small price when you consider the devastating impact unexpected costs may have on the overall ROI of your house flipping company.

Why is a Hard Money Loan The Best Loan Option for House Flipping?

The following is a detailed discussion on the benefits of securing a hard money loan, as compared to the other options, for your flipping projects:

Hard Money Loan Funds Faster

Fix-and-flip investing is aimed at acquiring a property at an awesome price and renovating it within the shortest period possible and reselling it at a profit. This implies that time is a key determinant at all times. Quick cash hard money loansfor house flipping are quicker and more adaptable as compared to regular bank loans when it comes to funding a fix-and-flip project.

Hard Money Lenders Ease Qualifying Standards

The lengthy borrower application process is one of the factors that make a traditional bank take more time to finance property investment loans. The bank will scrutinize your creditworthiness and financial records to the T.

Under a hard money option, the property is used as security in the loan. The lender does not care much about your FICO. Rather, he is more interested in how you are a good house flipper and what your success rate with flips is.

Hard Money Loans Have Shorter Durations

A standard home loan is commonly amortized over a period of 15 or 30 years. Whereas on a hard money one, you will be making interest-only monthly payments over a period of 6 months to 2 years.

A lot of such lenders do not impose a penalty fee in case of early repayment of the loan. You are free to clear the balance once your property is sold. On the other hand, in case you require additional time, there are hard money lenders who will provide 3 to 6 months extensions to their qualified borrowers.

Poor Property Condition is Tolerated (Often Expected)

A traditional bank will tend to be very demanding in matters concerning the state of the property being financed. The value of the property in as-is condition will normally restrict the amount that you are able to qualify to borrow from a bank.

In the case of fix-and-flip loans, the as-is level of the property does not matter as long as there is enough after-repair value (ARV) to support the amount of the loan. The property is being bought in order to renovate it. Hence, it is not expected to be in excellent condition and will not be a disqualifying factor to the hard money lender.

Conclusion

Several real estate investors rely on hard money loans for their house flipping projects. It has its own benefits and drawbacks, but the benefits can easily outweigh the cons for a strategic investor. Money and Real Estate Solutions For You, LLC offers quick cash hard money to diligent real estate investors across the US.

FAQs

What are the expected usual terms for securing a hard money loan?

Most hard money loans are offered for a period of 6 to 18 months with interest-only payments. Then, there is a final payment of the original amount at the end. Rates vary based on several factors, such as project strength and investor experience.

Do I need to have a perfect credit score to secure the loan?

No, most hard money lenders have their focus on the asset and overall project potential—not just your credit score.

Are hard money loans more expensive than usual bank loans?

Yes, their interest rates are usually higher than those for 30-year mortgages. The rates are usually determined by how much capital you require and the perceived value of the deal to the lender.