Hard Money loan NYC has been one of the most discussed topic of investment financing among realtors in the New York, USA. Be it in the Yonkers, Queens, Manhattan, Staten Island and lots more, its publicity have cut across the length and breadth of the state owing to its booming importance. This cannot but be because real estate investment is one of the leading businesses in various states, cities and towns of the US.
Most times, conventional lender do not want to assist realtors with mortgage on properties because those properties are such in bad conditions. However, hard money lenders have made themselves the best alternatives in those situations to assist investors. This is because hard money loan are funds borrowed from private lenders with varying terms and condition which are usually agreed upon by both lenders and borrowers. The borrower pays interest on the money received until the full payment is made to the lender. Sometimes, hard money loans attract one-time fee for processing of the loan. This is usually charged by the lender.
Why Hard Money Loans and who need them?
Real estate investors usually turn to hard money loans because real estate investment is risky and banks as well as traditional lenders usually don’t want to involve themselves in risky business deals. They are instead usually interested in lending on stable investments with greater likelihood of repayment.
However, realtors though engage in risky real estate businesses are often locked in quick as well as short term transactions like flipping and fixing a property for resale. They also purchase old buildings for rehabilitation and sales. These transactions usually take between three and six months, at most twelve. Some realtors also purchase income properties and therefore use hard money loan initially until the property is stabilized. Individuals and real estate investors who are unable to get bank mortgages owing to their poor credit score but have enough equity in the properties they possess can also turn to hard money loans. The named scenario is common among homeowners facing foreclosures on their properties.
Benefits and risks of hard loan for real estate investors
Every short and intermediate businesses need proper financing for quick profits and reinvestment. While traditional lenders might not want to involve themselves in all these transactions because of the risks involved, private lenders come to their aids with the following positive gaps and importance;
- Application and receipt of hard money loans are quick and easy
- Investors can borrow more because only 5 percent of purchase price are required by lenders compared to the 20 percent required by conventional lenders. Some lenders wouldn’t even ask any
- Just like with banks, realtors can establish good relationship with lenders once they have shown trustworthiness in respecting terms and repayments.
- Hard money loans can be a great starting point for investors. However, it is not right for every investors
- Hard money loans allow investors to close business deal quickly and easily, earning their profit and repaying the loans.
Although very good for quick and intermediate investments, hard money loans also has its downside. They include;
- Higher interest rates compare to traditional lenders
- Sometimes high origination fees are charged
- Only works for short term and intermediate businesses to avoid interest accumulation hence, repayment challenges
- Investors can easily lose properties to lenders if repayment is not properly tackled
The great point about hard money loans and bridge loans however is that once the terms of agreements are respected and repayment are done in specified time as agreed, it remains a viable financing option for real estate transactions because of the nature of the business.