Click here to get this post in PDF
Hard money loans are used to finance projects that involve the rehabilitation or repair of old properties. You can bring together investors who want to earn high interest and rehab borrowers when you open a hard money lending business. Rehabbers will increasingly turn to hard money lenders Maryland for their primary source of funding as the housing market improves.
How hard money loans work
Short-term loans are available from hard money lenders for as little as six months up to two years. These loans are usually interest-only payments loans that can be amortized over thirty years. To repay the principal, the borrower makes a lump sum payment at the end. The loans typically cover 60 to 80 % after the property’s value has been repaired (ARV). Hard money loans are subject to high-interest rates, loan origination fees, and lender fees.
Here Are 4 Ways Through Which You Can Make Money With Hard Money Loans
Set up your business
You can start setting up your company by choosing the type of business structure you prefer, such as a limited liability or C corporation. Then, advertise in local newspapers, online classified directories like Craig’s List, and social media to find investors or borrowers. You can join your local property investor club to network with other investors or borrowers. Partner with someone who knows how to value rehab property. As needed, have an attorney draft contracts for investors and borrowers.
Interest Rate Income
Interest rates for hard money loans range from 8 to 18 %. The loan amount, property’s ARV, and borrower’s credit rating will all affect the interest rate. Borrowers with poor credit ratings are charged higher interest rates than those with excellent or good credit ratings. For example, if you take out $100,000 in interest-only loans at 9 percent interest, your monthly income from interest is $750. You can charge 15% interest on borrowers with poor credit and earn $1250 per month.
When a borrower pays the money to the broker or lender for the loan to be given, this fee gives the borrower points. The number of points is determined by the credit score and amount of the loan of the borrower. Points are proportional to the interest. That is, the one point equals one percent. For example, if you make a $400,000 loan and charge the borrower 3 points, you earn an additional $12,000 which is due to $240,000 multiplied by 3 %.
Additional fees and costs
You can make money as a hard money lender by charging other fees and loan costs. You can make an additional $750 to $2,000. You may also be charged a loan processing fee, which adds several hundred dollars to your income. The cost of document preparation fees for the preparation of loan documents can run into hundreds. Additional sources of hard-money loan income include fees for document courier services and property inspections. These fees are higher than the actual cost amount.
A hard money loan is the right option for real estate investors looking to fix or flip properties. Investors need hard money loans to provide them with the leverage and flexibility they need to compete with all-cash offers. Conventional lenders won’t lend to properties that are in distress, take too much time to close and have complicated underwriting criteria. There are many options. Advantages to hard money lending. Follow these steps to complete a successful flip with hard money loans.
You may also like: How Online Loans Can Help You Deal With Startup Stress
Image source: Shutterstock.com