Hard money loans are designed to help investors quickly obtain funds to acquire all kinds of property, finance renovations, and more. These loans have high interest rates and flexible terms, making them one of the most misunderstood types of real estate lending options. Banks use the lack of well-informed knowledge regarding hard money loans to their advantage.
Banks have a certain level of control over real estate lending practices. The flexibility hard money lending offers investors will shift the market dynamics away from the banks’ favor, and they will lose valuable clients. As a broker, you may prefer working with conventional lenders due to their long-term repayment terms and the low interest rates they offer your clients.
However, conventional lenders like banks and private institutions have strict loan eligibility criteria. This leads to a higher chance of your clients getting rejected, which will affect your operations. It is best to work with several private lenders alongside banks and institutions to offer your clients a high chance of getting approval. Here are five untold truths about hard money loans that banks don’t want brokers to know:
Flexible Borrower Requirements that Allow for Accommodating Any Client
Most banks and other conventional lenders request a minimum credit score of 600, full appraisal, income history, owner-operation, and more. Not all valuable clients can meet traditional lenders’ requirements as they are thorough and costly.
Hard money lenders offer flexible loan terms and conditions because they are private investors with considerable interest in real estate. They can finance several properties, including short-term rentals, clubs, commercial properties, multi-family residential, and more.
Most hard money lenders do not care about your client’s credit score and history income source because they are equity-focused. By working with a hard money lender, you can secure custom-tailored loans that meet each client’s needs and situation.
You wouldn’t have to turn away potential clients interested in purchasing commercial property with great investment opportunities who have incomplete documents. Partnering with a hard money lender is essential in diversifying your clientele portfolio.
High Loan Limits With No Investment Restrictions Attract Potential Clients
Private investors who offer commercial hard money loans do not restrict the loan amount or number of financed properties your clients can have. Conventional lenders limit borrowers to only having 8-10 financed properties, limiting your client’s opportunities to broaden their property portfolio.
Hard money lenders determine the loan amount by dividing the ratio of the loan amount by your client’s property value. Most lenders offer loan amounts up to 75% of the property equity or more. Some lenders even provide higher loan amounts based on the future value of a property. This will benefit your clients who are into fix and flip as they can invest in large projects that will yield more significant income.
Hard money lenders have extensive knowledge of real estate. If they evaluate and decide the commercial real estate investment is profitable, they will approve the loan. As a broker, when you consistently deliver positive outcomes, you can build trust with your clients and they will recommend your services to others.
Fast Closing that Provides a Competitive Edge
Banks and other conventional lenders take at least three weeks before approving a loan due to the requirements. Sometimes, the traditional loan process can even take months if your clients have issues securing the documents needed to close. Meanwhile, hard money lenders offer fast closing within 3 to 5 days due to their less stringent rules and requirements.
Several real estate investors who need to close on a commercial property quickly often opt for hard money loans as funding is accessible in a few days. Timing is essential in the real estate industry. With hard money loans, your clients can secure deals with high-profit margins that offset the effect of the high interest rates.
Clients purchasing commercial properties can avoid foreclosure by opting for hard money loans instead of conventional loans. By partnering with a hard money lender and capitalizing on their speed, you and your clients can increase your competitive edge over others in the market.
Potential for Clients to Make Cash Offers
Sometimes, you will see a commercial real estate listing stating cash offers only. These properties are usually in rough shape, and the owner wants to sell them off fast. Property owners know banks won’t finance run-down properties, so they only accept cash offers.
In the real estate industry, commercial hard money loans are also considered cash loans because they can close within days. When you partner with a trustworthy hard money lender, you can provide your clients with the solution they need to secure their dream property. Using the hard money loan, your clients can secure high-potential properties and minimize investment risks through portfolio diversification.
Bridge Loans Provide Short-term Financing Solutions
Hard money lenders offer bridge loans, which are short-term financing solutions. Hard money bridge loans are used in real estate to bridge the waiting gap until primary funding is acquired. This type of loan has all the essential characteristics of a hard money loan, including asset-based lending and flexible terms and conditions.
Most real estate investors opt for hard money bridge loans when they need quick funding and are not yet eligible for a conventional loan or traditional mortgage. With a hard money bridge loan, your client can secure financing for their new property and refinance for a new mortgage while selling their old property. Partnering with hard money lenders will allow you to offer your clients a lifeline in time-sensitive situations.
How Brokers Can Leverage Hard Money Loans
As a broker, hard money loans provide you with an alternative that can outcompete traditional bank loans. You can scale your practices by having a greater knowledge of hard money loans. Here are some tips on how to leverage hard money loans as a broker:
Build Relationships with Reputable Hard Money Lenders
Cultivating a solid relationship with trustworthy hard money lenders is critical for brokers to increase their origination volume. You must network actively to find hard money lenders who are genuine and willing to offer customized loan offers.
To identify a suitable lender, conduct due diligence on their reputations, responsiveness, and lending history. When you find a suitable hard money lender, establish trust and rapport with them. A budding relationship can lead to favors, resulting in better loan terms and conditions for your clients.
Offer Creative Financing Solutions
When it comes to the real estate industry, creativity and flexibility are what set successful brokers apart. Include hard money loans as part of the financing options you present to your clients.
Don’t just follow banks and other conventional lending options; explore other financing options that can be tailored to each client’s needs and properties. This can include partnering with a private lender to develop creative exit strategies for your clients. When you think outside the box, you can diversify your portfolio and improve your business.
Inform Your Clients
Explain in detail to your clients how they stand to benefit from hard money loans and their risks. Position yourself as an expert in offering hard money lending by creating market materials that boost your credibility and highlight your expertise.
When you communicate and demonstrate a comprehensive understanding of hard money lending, you will instill confidence in your clients to take a beneficial risk. You will also be able to attract new clients looking specifically for hard money financing options.
Continuously Stay Updated on the Latest Trends
Always stay updated on the current market trends and regulations regarding hard money. The best way to stay ahead is to stay informed. Gaining timely knowledge about hard money lending practices and regulations in hard money lending will give you the upper hand against competition.
You will be able to secure the best commercial loans for your clients, which will improve your reputation and position you as an expert in the industry. Earning a reputation for professionalism and reliability will generate referrals and help foster long-term relationships with clients.
Establish a Bond With Capital Max
Capital Max is a creative financing firm that supports alternative funding, including hard money lending. We have in-depth knowledge and experience regarding commercial real estate investments. As a broker, fostering a relationship with us can help you become your clients’ lifeline regarding property financing issues. We will help you secure asset-based loans that banks have denied you. If you have any questions regarding our lending process or fees, contact our team at Capital Max.