Hard Money and Private Money Rental Property Loans

Do you want to invest in the rental property market? Your timing couldn’t be better. While the mild lull in the property market continues, now’s the time to invest in low-cost properties with the aim of making a neat monthly profit. Before you do, however, you need to consider which form of financing you’ll choose. More and more real estate investors are using hard money and private money rental property loans. If you find that traditional finance gives you a headache, it’s worth seeing whether they’ll work for you too.

What is a private money rental property loan?

In many cases, a private money rental property loan acts like a bridge loan that you use to invest in rental properties. If you currently own a property and you’ve seen another one on the residential rental market you want to buy, you may find getting a mortgage is easy enough. However, you’ll still require a deposit. If your current credit rating isn’t stellar, a hard money rental property loan could act as an easier and faster form of finance.

Unlike traditional bridge loans, they come from private lenders. As a result, the lending terms are more flexible. In addition to an increased chance of securing a loan with a less-than-perfect credit score, you’ll enjoy a faster closing. Although the interest rates are higher, you can repay the loan sooner than other types of finance. In many cases, there aren’t early repayment fees. Your private lender will secure your loan against your current property.

Who should think about getting a hard money rental property loan?

You might also want to consider a hard money rental property loan as a form of acquisition finance. Again, this is faster than waiting for a traditional mortgage. You still have the option of refinancing into a traditional bank-financed mortgage later, but private money loans allow you to move quickly when an enticing rental property is on the horizon.

Overall, the categories of people who should consider a private money rental property loan include:

  • Those who prefer short-term finance
  • Those with a less-than-perfect credit score
  • Individuals who need a quick bridge loan
  • Real estate investors who don’t want to wait for traditional financing
  • Those buying an underperforming rental who plan on raising rents

Why would you want a private money rental property loan?

Few investment opportunities are more time-sensitive than real estate. If you want to buy a property so that you can rent it out to someone else, it’s always a good idea to move when there is a lull in the real estate market. Additionally, when an area is up and coming, purchasing properties as soon as possible to maximize the rental potential. Most importantly, if you’re purchasing a rental property so that you can enhance your retirement income, it’s worth acting sooner rather than later.

Spotting an advantageous chance to make a profit often warrants acting quickly. Depending on your current property portfolio and credit background, waiting for traditional finance can take weeks or months. Even worse, if you struggle to prove your income as a self-employed person, you may not be approved at all. If time is of the essence, use a hard money rental property loan.

It’s also worth considering non-qualified mortgage (NQM) options

If private money rental property loans appeal to you, you might want to consider a non-qualified mortgage loan also. Like private money loans, they don’t have strict lending requirements and are more flexible. For example, some NQMs have the option to repay interest only. Non-qualified loans come with higher debt ratios, which means you can borrow a larger sum. To use them, you need to demonstrate a reasonable FICO score, current rental income, and liquid assets.

What’s the best way to get a hard money rental property loan?

As you now already know, hard money rental property loans come from private investors. Because of this, you’re free to find an investor yourself, such as asking friends and family for a loan. However, you may find that the process becomes faster and easier when you use a broker. Since brokers can access large networks of private lenders quickly and they have the aptitude to match you with the right one, you’ll broaden your options. If hard money lending appeals to you, First Capital Trust Deeds can help you explore your financing options.