Hardmoney lenders or traditional lending? Pros and cons

7 Replies

Pros: 

They care about the property itself not your credit score.

No "nonsense" like going through a bank and submitting paperwork and waiting and waiting and waiting for underwriting

Speed to close, making a "cash" offer

Cons:

Way more expensive with generally upfront fees and points

Lower term commitments some as short as 6 months for flippers

Failure to pay them back ( though much like a bank ) would result in you being foreclosed on and losing your down payment money and the asset. 

If your thinking of buying in Winnemucca you will probably have very few that will be willing to lend there.

you may want to look ( if in deed this is the market you want to buy in) at finding local successful business owner that has funds in an IRA or self directed sep to make you loans. not necessarily cheaper and could be more money but will know your market and actually lend in that area.. most bigger lenders simply wont take on a market like that too small to remote.

Hi @Ivan Sepulveda ,

There are, as you might expect, pros and cons to using a private lender as opposed to a bank to finance your projects.

Pros;

1. Faster capital. Private lenders are generally much more nimble and have a faster approval process than banks.

2. Fewer docs. Private lenders generally require less documentation than banks, and some private lenders don't even require a full appraisal (more often the case with private lenders that are very familiar with the location of the subject property, and can perform adequate in-house underwriting).

3. Fast construction draws. The construction draw process for many private lenders is faster than with banks, because they are set up to finance real estate investors/fix and flippers such as yourself. This means that you get your funds faster, because most rehab lenders fund on a reimbursement basis, or once the work is completed and inspected.

4. Less strict borrower standards. If there is a gap in your profile, e.g. a low credit score, there are private lenders that can work around this. You would be hard-pressed to find the same flexibility with a bank.

Cons;

1. More expensive capital. The interest rates and points you can expect to pay are typically going to be higher than with a bank. You can expect to pay high single digits to low double digits in interest rate, and at least a few origination points.

2. Less scrutiny. There is generally less oversight/regulation with private lenders than exists with banks. As a result of this, it makes sense to spend more time understanding the lender that you are working with, and probably get some good recommendations from other investors or real estate professionals that you trust.

Best of luck!

Michael

@Jay Hinrichs

Yes im thinking of starting off here in this town but the reason is because this small town is growing so fast starting off with the jobs there is, this is a mining town an from the looks of it they keep opening and opening new mines around the area which im willing to invest for a rapid increase in value over time..

But also as you mentioned i still have to look for who would lend in such a small town so i can start.

Thank you