There are a lot of ways to think about how hard money loans impact the real estate market. We’ve talked about some of them before, but in this blog post, we’ll talk about how hard money is often different from other kinds of lending that are incremental and most often amortized when it comes to property lending.
Mortgages and Hard Money
A mortgage is a 15 year, or 20 year or 30 year lending agreement that has a specific schedule of payments that are consistent and stable. Instead of lending some lump sum amount of money for a given term, the mortgage is set up so that borrowers can make monthly payments on the principal and interest, and come out at the end of the term with a zero balance.
Auto loans are set up this way, too, and it’s something that a lot of consumers and families are familiar with. It’s also friendly to the average family budget in a way that lump sum payments often are not.
By contrast, a hard money loan may be in the form of a particular immediate lump sum, especially if it’s being used as a gap for an existing commercial loan.
Fixing Lending Discrepancies
Why do real estate borrowers seek hard money loans in the first place?
In quite a few cases, it’s because the traditional mortgage loan doesn’t work for their real estate strategy.
Another way to say this is that many hard money recipients are not first-time home buyers who want to pay off a property over 30 years. They are investors who may have a fix and flip strategy or other resale strategy in place from day one.
These investors usually have a different timeline. It may be one year, or it may be five years – but they often have radically different investment strategies where they want earlier payoffs instead of the incremental payment approach that works for families living in a property themselves.
In other words, investors don’t usually need payment plans. They may be buying a property with cash, but they may need coverage for that extra last-mile amount. If someone has $300,000 in cash but they’re buying a $350,000 property, for example, they may secure that extra $50,000 in hard money
There’s a lot more to how this works. Locklin Capital offers quick, personalized and versatile hard money lending options in markets where this money can really do some good. Ask us about what we do for real estate investors and other clients, to get creative in fixing unusual real estate lending discrepancies.