Even the most seasoned real estate investor is not immune from an occasional stumble. The real estate market can – for better or worse - be unpredictable, as can any development project, renovation, or sale negotiation. When the unthinkable happens and investors are suddenly in need of money, many are beginning to rely on a hard money real estate loan to weather the storm.

A hard money real estate loan is a private money loan generally given out by non-banking institutions. If you’ve never ventured beyond looking into conventional bank loans, you may or may not have heard of them before. If you have, but only in passing, you may also hold several misconceptions about how a hard money real estate loan can benefit you. It’s important to consider all the pros and cons before proceeding.

First, a private hard money real estate loan is indeed fast. While a traditional bank loan can take weeks to approve, a hard money real estate loan can be in your hands anywhere from just a few days to a week.

Second, the amount of paperwork you need to fill out for a hard money real estate loan is minimal. Private lenders view your property as collateral, and will provide the loan against the value of the property. Thus, traditional credit checks, income statements, and tax returns may not be needed or they are less scrutinized.

Third, the flexibility of a hard money real estate loan works in the borrower’s favor. Not only can the loan be used for situations including real estate purchases, construction, renovation, foreclosure, and bankruptcy, but lenders will also tailor the terms of the loan precisely to the borrower’s needs.

Now the warning that comes with a hard money real estate loan is thankfully clear and not hidden. The high interest rate that a hard money real estate loan commands partially covers the lender’s risk, but also indicates that the borrow should view the loan as a short-term one. Hard money real estate loans are most effective as what is known as a bridge loan – helping the borrower complete the necessary tasks to get to the next stage of financing. Paying back a hard money real estate loan quickly is definitely in the borrower’s interest.

Hard money real estate loan - your last resort?

Some call a hard money real estate loan as a ‘last resort’ loan – when no other options are available to you. When you have bad credit or a bad loan history, have gone through bankruptcy or foreclosure, banks view you as a liability. These borrowers may only have hard money real estate loans as their sole option.

Sometimes, however, even borrowers in good standing can find themselves needing extra funds to continue with their real estate project. Whether it is for unforeseen costs related to construction, a buying situation where the deadline for closing is sooner than what a conventional lender like a bank can meet, or just a way to start up a project as quickly as possible, a hard money real estate loan is always ready to be on hand.

So in actuality, while one can consider these cases to be ‘last resort’ situations, a proactive approach can be to a borrower’s advantage. Factoring in a potential hard money real estate loan at the beginning of your real estate venture or down the line as a contingency, you can in fact prepare a stronger plan for your project.

There is no shame involved with a hard money real estate loan. While it can help get you through trying times, it is not an indication of poor investment strategies nor does it reflect the ultimate value of your property. Keep in mind the flexibility and quickness of these loans; they can be very useful as you plan the future of your real estate investment.

To learn more about how a hard money real estate loan can help your investment, consult Lighthouse Capital Funding. We are a private hard money real estate lending institution that specializes in providing a convenient and effective solution to your financing needs. Contact us today.