Hard Money Loans and The Short Sale
Hard Money Loans.
The Essence of hard money loans is that they are short term loans made to real estate investors so they may purchase, rehab or purchase and rehab commercial and residential investment property with lots of real equity. For traditional financing the value of the property is the lesser of the purchase price or the appraised value. That definition does not account for distressed property that for any number of reasons can be sold below market and therefore has real equity when properly compared to similar properties. Truly the years have shown that for traditional lending that is the best definition of value. For it is too hard to determine true value and or future value of property that may not be in good condition or may have other appraisal value issues that may stop the property from being sold on the to a prudent consumer.
Hard Money Loans.
Hard money loans are only made to real estate investors and are only made on commercial and residential properties that will not be used by the investor as an owner occupied property. This is to keep in line with the laws of usuary and predatory lending. To charge higher fees and interest rates to consumers is illegal. But, Real Estate Investing is a business and business are theoretically astute enough to determine the risk and reward. Business owners can determine which course of financing they would pursue and if the cost are justified by the potential reward. I would never finance my home using a hard money loan, but I would invest in a short sale property that I can purchase at 30% to 50% of value even if it costs me 10% in fees and double the normal investor interest rate. So even assuming this adds 15% to the costs I would still be way ahead when I refinance or sell the property.
The Short Sale.
In today’s market many financial institutions are willing to accept less than what is owed to them on the sale of a property that they have lent money on to avoid having another none preforming asset on their books. Non performing assets mean that a bank will be judged by federal regulators based on the percentage of non performing assets in the portfolio. If you truly have a book of account receivables that no one is paying you on the value is not there anyway. Banks are not in the real estate management and sales business. Therefore, there is a limit to the amount of properties they can own and manage. All these are reasons to accept less or accept a short sale so that the money you do get will go to work for you right away.
The Short Sale.
Another reason banks accept short sales is that if they have to foreclose on a property that adds costs and the value of the asset reduces greatly if the occupant is evicted. So who is to say the amount the bank accepts as a short sale would not ultimately be more than they may have otherwise gotten off of a deal.
Hard Money Loans and The Short Sale.
That opens the door for investors to purchase homes that they can buy below market value employing the short sale and use hard money loans to finance these deals. The hard money loans will have the benefit of putting little or no money down and potentially, getting funds to rehab the property to make them more saleable or qualify for normal refinancing.
If you have a potential investment opportunity and can use money to purchase and or rehab commercial or residential investment property contact me at louisj@alldominionmortgage.com or leave a private comment below and I will follow up with you to discuss the viability of your financing needs.
