A hard money loan is provided by a private lender for the purpose of a non-owner occupied property. While these loans can be provided for any type of property, there are certain properties that they are more commonly used for. These are typically those that feature a quicker exit strategy. This way the lender can be assured they get paid by the end of the loan. Here are some of the most common types of properties for which hard money lending is commonly used.
A common type of investment property is a fix-and-flip. This is where an investor will purchase a run down property and pay for repairs to sell it for a higher price. Since these are usually completed within six months, they are the most popular types of properties for hard money loans. In addition to providing money for the purchase, many hard money lenders will finance the repairs as well. This ensures that the repairs will be done in an efficient manner and they can be repaid for their loan.
Since the primary goal of hard money loans is for lenders to receive their money back in the short term, rental properties are another common use. This is because the owner of the property will receive a steady income from the renter. The investor of the property will typically use a hard money loan for this purpose when they need to close the deal quickly. A traditional loan might take too long and a hard money loan will ensure that they can purchase the property.
Hard money loans are most commonly used for multifamily properties when they need to close a deal quickly. Similar to rental properties, not all situations will allow the buyer to go through a traditional lender. The property purchased might also be in need of several repairs. That can make it difficult to receive a traditional loan. A hard money loan will allow the buyer to receive the necessary funds to purchase the property and make any needed repairs to begin renting the living quarters.
While the purchase of many properties allow for a traditional loan, some will require a hard money loan. This will allow the person to receive the necessary funds quicker and enough money to complete needed repairs to the property. These are three of the most common uses for hard money lending.