There are new ways for a person to get involved with real estate investing these days. An individual used to go to their local bank as their only option for obtaining the level of funding required to purchase a piece of property or a home.
No longer are they boxed into a few choices. These days, a person who is serious about their real estate options may make the choice to go with a hard money lender.
Why Traditional Options No Longer Work
There are a whole host of reasons that we could go into about why traditional lending is not the way to go for people in today’s world. The truth is that it comes down to just a few basic things. They are:
- Approval Odds
- Disregarding Of Collateral
These are the big ones that people can point to as major issues when it comes to how the traditional lending industry treats its customers. They are often disregarded for any number of reasons. Even when they are approved, it is a problem because they might have to wait for a significant period of time before ever being granted the right to get the money they need for their real estate.
Regulations have made it increasingly difficult over the years to get a loan from a bank. The government has continued to tighten up their rules following the Great Recession of 2008 and 2009. The government has determined that they do not want banks to lend to certain kinds of people. If you are one of the unfortunate souls in that category, then you are doomed before you ever start.
A Different Way To Borrow
There is another option for people who want to purchase property, but not go through the traditional banking system. This method is what we call a hard money loan.
The point is to borrow from an individual in most cases to obtain the property you desire. This is nice since they have far fewer obligations in relation to following regulations set up by the government.
It is not just about avoiding regulation, a person will also want to consider this type of loan simply because it means that they are borrowing from someone who can get them the money they desire at a much faster rate than what they would otherwise be able to get it.
Anyone who has ever been part of the real estate investing community understands that speed is everything. There are so many properties that could be purchased while waiting for that first one.
Things To Consider Before Making This Investment
Before borrowing this kind of loan, think about how it might fit into your personal financial picture. Bear in mind the fact that you will have to put up the property that you are considering buying as collateral for the loan.
You will have to pay a higher interest rate than someone who is borrowing from a bank or credit union in all likelihood. This is to compensate the individual who lends you the money and to help pay for all of the advantages that you get by borrowing hard money rather than a traditional loan.
There is nothing that comes for free in life, so remember that you are getting something for those higher interest rates. They are not there to punish you but to help compensate the lender for the work that they are doing in this.
It is important to review all of your options before making any particular choices as it relates to investing in real estate. You might find that certain offers on the table are better for your financial state than others. The bottom line is that you are getting yourself into the real estate business, and that is what is the most important part of this.