Hard Money Lenders for Rental Properties

Hard Money Lenders

Should You Use Hard Money Lenders For Rental Properties?

One of the most common obstacles that new real estate investors face when they are looking to buy rental properties is financing. There are several choices that new real estate investors can apply for, including bank mortgages. However, these types of loans are often more difficult to get approved for than hard money loans for rental properties. In this guide, we will only focus on hard money lenders for rental properties and the different types of loans that fall under this category.

Deciding to invest in real estate is a potentially very lucrative way to diversify your financial and investment portfolios. Although you can choose to invest in real estate passively through real estate crowdfunding or RETs (real estate investment trusts), the majority of investors prefer to directly own the property they are interested in.

If you do not feel comfortable paying out a lot of money upfront to purchase a rental property, a hard money loan may be the best choice for you. Although this type of lending product offers several benefits over regular financing, there are those who do not agree that hard money loans are viable forms of real estate financing. 

Many financial and real estate experts are often opposed to the idea of new real estate investors taking out hard money loans. Nevertheless, we believe that this is an ideal loan option for many reasons, and there are reasons why you should choose this type of financing over traditional lending practices. So, if you are ready to learn more about hard money lenders and how they can help you, continue reading.

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Hard Money Loans – How Do They Work?

These types of loans are also known as bridge loans, and they are financial lending products that can be used by real estate investors for short term loans. They are used to finance different types of investment projects including the purchase of rental properties.

Hard money loans are popular among real estate developers and house flippers because the loans can be used as tools to either develop or renovate a property. The property can then be sold at a later date.

However, for real estate investors who want to purchase rental properties, a hard money loan makes it possible for them to purchase property that will generate an additional passive income stream.

These loans are not issued out by traditional lending institutions such as banks. They are approved by private lenders.

It is important to note that there is one major difference between a bank loan and a hard money loan. Unlike a mainstream financial institution, approval for hard money financing is not dependent on the investor’s credit.

Who Are Hard Money Lenders?

Hard money lenders approve capital for investors who are looking to purchase real estate and/or finance real estate development. These lenders often finance a large piece of the transaction, but these loans are often accompanied by very select terms and conditions.

The lending practices associated with hard money loans allow investors to have access to the money they need quickly. In many cases, investors are approved for these types of loans in 24 hours or less.

Investors should be aware of the fact that hard money loans are not regulated like traditional loans are. This means that lenders can make the rules up as they go along regarding: How much they are willing to lend, who they are willing to lend to, and the terms and conditions for each loan

With that said, hard money lenders typically offer loans to investors who are considered to be ‘high-risk’ for a traditional bank loan. Some investors may not have a verifiable income, or they may not have the necessary supporting financial documents. Other investors may not have any credit, or they may have bad credit.

Not only do hard money lenders approve loans for individuals who are high-risk, they also approve loans on properties that are also considered high-risk. For example, it is common for hard money lenders to approve financing for properties that are very distressed or for ones that are still under construction.

In other words, hard money lenders are considered high-risk lenders when compared to traditional lenders.

Real Estate Hard Money Lenders

Real estate hard money lenders take a close look at the property’s value when they are making the decision whether or not to approve financing. In fact, they look specifically at the property’s ARV (After Repair Value). This is an estimate that is placed on the property that predicts what it may be worth once development or renovations have been completed. 

As previously mentioned, these lenders typically approve loans for financing as long as the asset in question meets their criteria. For example, for a commercial property such as a rental property, the lender will take into consideration the value of the building before making a final decision on approval. If the building is in need of renovations, the cost for the renovations is also considered in the final value of the property.

Depending on the terms of the loan, the investor can expect to receive financing for up to 80 percent of the property’s value.

Some real estate hard money lenders may only lend money in certain regions, while others are willingly to lend money to investors nationwide. One of the best ways to locate a hard money lender is to search online for ones that are in your state or those that work with investors across the country.

The Different Types Of Hard Money Loans

There are several types of loans investors should be familiar with from hard money lenders for rental properties. With these loans, investors are able to buy, cash-out and even refinance rental properties.

All of these loans have been designed to address the varying needs of real estate investors. No matter if you are brand new to the world of real estate investing, or you have a diverse property portfolio, the following are some options for you to consider so you can find the perfect hard money loan for your needs.

Rental 2+1 Hard Money Loan Summary

The Bridge the Gap Loan, also known as the Rental 2+1 is a financing program that is ideal for real estate investors who are looking for the financing they need between short-term financing and long-term financing.

This loan has a balloon of 2-year interest , and there is also a 12 month extension that is also available at a rate of 7 1/4%. This is applied to the refinancing or the purchase of a portfolio or a one rental property.

Interest rates are based on:

Credit

Rent coverage ratio

LTV (loan to value)

Rental 30 Premier Hard Money Loan Summary

This type of hard money loan is perfect for investors who are looking to create stable and permanent growth with their portfolio of rental properties. They are several benefits to this type of hard money loan product such as:

Low interest rates

Fast closings

Non-recourse

Rental 30 Hard Money Loan Summary

The following highlights some of the key features of this loan product.

Length of loan – 30 Years, Amortized

Rate – 5.25 to 7.9%

Minimum loan amount – $50,000

Maximum loan amount – $1,000,000

Minimum credit rating – 620

Maximum LTV – 75%

Build2Rent

If you are considering new construction for your rental property, a Build2Rent hard money loan offers real estate investors the opportunity to get a single-close loan. This loan would be both an interest-only loan for construction.

After construction, you can then use a Rental30 hard money loan to upgrade the rental property.

Summary of Build2Rent:

Construction only financing

Loan terms of 13 to 19 months with fixed interest and a balloon note

Rates are fixed

Completely Amortized

Suitable for SFR properties (1-4)

Minimum loan amount – $75,000

Maximum loan amount – $5,000,000

Minimum credit rating – 620

Financing For Multifamily Investment Properties

If you are thinking about buying or refinancing a property for multifamily use, there are hard money loan programs available for you to choose from.

Deciding to invest in real estate is a potentially very lucrative way to diversify your financial and investment portfolios. Although you can choose to invest in real estate passively through real estate crowdfunding or RETs (real estate investment trusts), the majority of investors prefer to directly own the property they are interested in.

These loan products are one of a kind in the industry because they allow investors the chance to not only get approved for financing with a small down payment, but they can also combine all of the closing fees and other fees into the total cost of the hard money loan.

Hard money loans designed for multifamily rental properties are unique because investors can have the leverage and the flexibility that they need to take advantage of other opportunities across the country.

One of the best things about being a real estate investor is that you can utilize other people’s cash in order to grow your investment portfolio. Hard money loans are used quite often by investors who need to find a short-term funding solution for real estate investments. These loans can be used to flip a house, as well as used to purchase rental properties.

Real estate investors who want to begin their portfolio with rental properties may feel overwhelmed as they begin the process of securing funding for their investment opportunity. The good news is that there are hard money lenders for rental properties available that are willing to approve you for the cash you need.

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