What is a Hard Money Loan in Real Estate?

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There are not too many investments that can transform your financial future the way that real estate can.

A fantastic tool for generating wealth, the biggest hurdle investors have, is getting access to the cash and capital they need to jump on opportunities when they arise.

Traditional lenders are sometimes hesitant to lend to real estate investors, especially those that are new and have only a few properties (if any) under their belt already. Banks, credit unions, and other financiers vividly remember the market crash of the middle 2000s and are tighter with their lending than ever before.

But that’s where hard money loans come into play.

Hard Money Loans 101 – A Quick Overview

A non-traditional financing option, hard money loans (sometimes called bridge loans) are short term lending instruments that give you the cash and capital you need to jump on real estate deals when they become available.

Beloved by house flippers and developers that always need some cash to bring another real estate deal to life, these kinds of loans usually come from the private lending world as opposed to banks and credit unions.

The number one thing that makes these kinds of loans different, though, is that they are almost completely divorced from your income and tax returns.

Instead, hard money lenders review the actual value of the property or deal you are making before they give the green light (or not) on your loan package. These lenders are always zeroing in on what is called “After Repair Value” or ARV – essentially the value of the property or properties after renovations, expansions, or development is finished.

Breaking Down the Benefits of Hard Money Loans in Real Estate

There are some big benefits to moving forward with a hard money loan, too. We are talking about benefits like:

  • The Easy Application and Approval Process – Traditional real estate loans (especially mortgages) always get bogged down during the application and approval process. Laws and regulations (like the Dodd-Frank Act, for example) throw roadblocks in your path every step of the way. Hard money loans are so much more streamlined.
  • Lightning Fast Funding – Another huge advantage of hard money in the real estate world is how quickly you can get your hands on the cash and capital you are looking for. Where traditional money might not hit your bank account for a couple of months (as you watch deals slide past you), hard money can be ready to use in a couple of weeks – if not even faster.
  • Collateral Backed by the Property Itself – The fact that the collateral usually put up to secure this kind of loan is the property in the deal you are financing is another huge advantage. Some lenders want you to put up your own assets to further secure this kind of loan, but private lenders offering hard money are always more flexible than traditional banks.

At the end of the day, hard money loans can give you fast access to the cash you need to fund real estate investments you would have missed out on otherwise – all without the red tape traditional loans bring to the table.

Be sure to do your research and due diligence before capitalizing on these financial packages, committing to work only with private lenders you know you can trust. Make sure you confirm important details like the loan terms, all fees, and how the repayment process is scheduled.

Hard money loans are a powerful tool in the hands of serious investors. Use them to make your real estate investing dreams a reality!


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