This is usually the main requirement for a hard money loan. Overall, a hard money lender will require a significant down payment in the 25 to 30 percent range or sufficient equity in the property if the loan will be a refinance.
When you work with a reputable hard money lender, you can fund an investment property in a little as 3 to 5 days. In most cases, real estate investors opt for hard money loans to quickly buy a property that has become available. After securing a hard money loan, the borrower can then refinance for a longer loan term with a lower interest rate. This is particularly important when there are many real estate investors bidding on the same property. Furthermore, sellers are more likely to accept and offer from a real estate investor who has secured a hard money loan rather than a conventional loan. These experienced sellers understand that hard money lenders can approve a loan much faster than a traditional lender and with fewer issues. In some cases, a seller may even take a lower bid because they know that the escrow time will be much shorter, and they can sell their property quickly.
Purchasing rental property is an extremely popular real estate investment strategy. In fact, real estate investors purchase these types of properties to be rented out to tenants for more than the monthly liabilities (principal, interest, taxes, insurance). In an ideal situation, the property owner will receive positive cash flow right from the beginning, although this is not always the case. Another plus is that the real estate investor will depend on the property appreciating over time and take advantage of tax benefits to maximize their profits.
Hard money lenders are available for borrowers who want to quickly secure a loan to buy a property. In some cases, these loans are approved the same day and the funding received in just a few days. Once the loan is secured and the rental property purchased, the borrower can then start shopping around for a long-term conventional loan with a lower interest rate. In other cases, borrowers seek out hard money lenders when they are denied by a conventional lender like a bank or credit union. There are many reasons a conventional lender may deny a loan, including poor credit, too many existing conventional loans, a recent bankruptcy, or a short sale. On the other hand, hard money lenders focus primarily on the value of the property and the borrower’s equity in the property, including the down payment. This focus on value and equity allows hard money lenders to overlook poor credit and other factors that banks and credit unions focus on.