Investing in real estate is a great way to get a good return on your investment. It’s also a wise choice if you’re looking for ways to diversify your portfolio. If you’re not completely comfortable purchasing real estate up front, you’re in good company. Many investors prefer to take out hard money bridge loans to finance their real estate transactions instead of putting their hard-earned money at risk. If you want to go this route, here are a few things you should know.
Benefits of Hard Money Loans
As long as you work with reputable hard money lenders Southern California, you can benefit from all the advantages hard money loans have to offer. Here are a few of the top reasons investors love this popular lending option:
- Flexible Terms: Unlike traditional loans, bridge loans are offered by private lenders. This means there may be more room for you, as the investor, to negotiate the terms of your loan. You may be able to reduce the origination fee and other fees that are common during the underwriting process. Your power to negotiate may be affected by a variety of factors, including your previous relationship with your lender, your credit profile and other factors.
- Convenience: The process of applying for a mortgage is a notoriously lengthy and time-consuming one. Depending on the situation, it can take weeks or even months to close on a loan. As an investor, the lengthy closing process can put you at risk of losing out on an investment property you really want to buy. To avoid losing the property to another buyer, you want to close as quickly as possible. A hard money loan makes it easier to close quickly so you have a better chance of acquiring the property.
- Collateral: If you attempt to take out a standard mortgage loan with the bank, you’ll probably be required to have collateral. This isn’t the case with a hard money loan. In most cases, the property being acquired serves as the collateral.
As you can see, there are many good reasons to consult with a hard money lender Los Angeles about your real estate investment goals.
Drawbacks of Hard Money Loans
As with practically anything in life, there are pros and cons to getting hard money loans. In addition to the substantial benefits listed above, you should also consider the following potential drawbacks of taking out a hard money loan:
- Shorter Repayment Period: Hard money loans are meant to bridge a financial gap for a short period of time. The main purpose of such a loan is to allow you (the investor) to purchase a property right away, while you look for more long-term funding. Due to their short-term nature, bridge loans have shorter repayment periods than standard mortgage loans. Keep this in mind when deciding whether or not a short-term loan is a right choice for your situation.
- Cost: Although they are convenient, bridge loans often charge higher interest rates than traditional loans.
Talk to hard money lenders Southern California to find out more about the terms of hard money loans. It’s important to carefully weigh the pros and cons of your various loan options before deciding what type to use for your real estate investment.