5 Reasons to Consider a Hard Money Loan
Hard money loans can reduce the risk for both borrowers and lenders because the purchased asset is the main underwriting factor for the loan. Furthermore, when you obtain a hard money loan you are borrowing from a private lender, rather than a bank. This means that hard money loans are typically easier to obtain than traditional loans, making them an optimal choice for real estate investors looking to close quickly on a property.
Hard money loans help bridge the gap between a real estate investment purchase and a traditional bank loan. Hard money loans are also known as short-term bridge loans. While interest rates are relatively high in comparison to more traditional loans, hard money loans do have some strong advantages. Here are 5 reasons a hard money loan may be worthwhile:
Purchasing a Distressed Property
Traditional loans obtained from institutional lenders are typically channeled toward borrowers who are purchasing a primary residence to live in. The reasoning here is that since the borrower needs a place to live, there is a greater likelihood that they’ll pay back the loan. Additionally, banks require that the property meet certain criteria before a loan is granted.
Real estate investors often hunt for distressed properties they can quickly fix up and flip for a profit, and since these properties usually won’t meet the standards for a bank loan, they seek out a hard money loan that can be utilized and repaid in a short period of time.
When a borrower is unable to pay their loan, the bank will auction the home for cash at a foreclosure sale in order to repay the loan. If the sale price of the house exceeds the amount owed, the remaining funds go to the borrower. That means that the starting price at a foreclosure sale must not exceed what the bank is owed, creating an opportunity for real estate investors looking for a discounted property.
You must have cash in hand to participate in a foreclosure sale. A hard money loan is ideal for this situation because it can be obtained quickly, and the price of the discounted property can possibly make up for the interest rates and fees of the hard money loan.
Loans are made or arranged by Wilshire Quinn Income Fund, LLC (the “Fund”) pursuant to California Finance Lenders Law license #603J060. The information contained in this message is for informational purposes only and is meant to provide general background information on the Fund and its manager, Wilshire Quinn Capital, Inc. (the “Manager”). Any and all information herein is deemed reliable but is not guaranteed.
Bank Owned Properties
Foreclosure sales do not always turn out a buyer, in which case the bank will then take ownership of the property. This is not an ideal situation for the bank because where they once had an interest generating loan, they now have an asset that costs money to maintain. The bank will either try to liquidate the property quickly or invest money to fix it up.
This is a great opportunity to employ a hard money loan because institutional lenders typically will not lend in this scenario. It also means that there will likely be less buyers to compete with, potentially reducing the cost of the property and creating a better opportunity for you.
Once a real estate investor has purchased a discounted property, they’ll have to renovate to not only make it desirable to a buyer, but more importantly, to meet the criteria for a loan from institutional lenders. Therefore, the real estate investor will put money into things like fixing water damage and dilapidated roofs, or adding a power meter or a water heater, etc.
So long as these issues can be resolved for substantially less than the value of the property, they should be able to make a profit. Hard money loans are ideal for projects like these because obtaining a traditional loan is unlikely.
When a real estate investor wants to construct residential or commercial structures on a bare lot, it’s vital that they move quickly since the longer a loan is owed, the more interest a borrower will pay. Hard money loans can be obtained quickly, and more importantly, the loan could potentially be expanded relatively easily if further injections of capital are needed during development.
There is one caveat here. Due to externalities like the weather or the pace of a construction company, you should overestimate how long a project will take. If you plan for 6 months and it takes 9, you risk exceeding your loan term and losing some of your profits.
How to Get a Hard Money Loan
Hard money loans are a necessary tool in the kit of any savvy and adaptable real estate investor. To obtain a hard money loan, you’ll want to contact a trusted lender with a long track record that specializes in this type of transaction. Contact us to inquire about hard money loans and bridge loans.
- Funding typically in 5-7 business days
Loan Amounts from $200,000 to $20,000,000
- Interest Rates from 8% to 10.5%
Loan Term: 3 – 24 months
Commercial & Residential (non-owner occupied) Real Estate
- Purchase, Refinance, Cash-out Refinance, Rehab, Blanket Loans
Foreign National Loans Available
About Wilshire Quinn
Wilshire Quinn is a San Diego hard money lender focused on short term bridge loans, secured by first trust deeds. The company is based in San Diego, CA with offices in Los Angeles and San Francisco. Wilshire Quinn typically funds loans for their customers in 5-7 days. Their successful track record is closely linked to their ability to make immediate lending decisions based on their highly disciplined underwriting approach. The company funds a variety of loans such as: refinance, purchase, blanket, rehab loans, 1031 exchange, partnership buyouts, and more. They originate hard money loans ranging from $200,000 – $20,000,000. Wilshire Quinn works with commercial and residential buyers nationwide.
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