Is a Hard Money Lender an Option for Purchasing Rental Property?

If you’ve found an ideal property that can be used as a rental, one of the most difficult components of the purchase process is finding the money to get the deal done. This is particularly the case if you already own other properties and could present a higher financial risk to a more traditional lender.

In this case, it could be a good strategy to use a hard money lender. A hard money loan is a shorter-term type of financing – usually between one and five years – that is funded by a private investor as versus a bank or lending institution.

Rather than basing the loan qualification on the borrower’s income and credit score, a hard money lender will consider the value of the underlying property – or collateral – for the loan approval process.

These types of lenders may also only loan up to 60% of the property’s value (as versus 80%, or even 100% that more traditional lending institutions may lend for the purchase of a primary residence).

In exchange for funding the loan, hard money lenders will typically require a higher interest rate than a traditional bank or lender would charge. They may also charge fees in the form of points in order to lessen their risk if the borrower stops making payment on the loan. Each point represents one percentage point of the amount borrowed. So, if you’re borrowing $100,000 from a hard money lender, one point would equal 1% of that amount, or $1,000.

While it may be more “expensive” to use a hard money lender for buying investment property, going this route could provide you with a way to secure the property, and then to refinance it at a lower rate in the future.

There is a long list of responsibilities that investment real estate owners must be mindful of – both during the time of the property purchase, as well as when tenants are residing in it. Because of that, it could make sense to turn these duties over to a local and experienced property management team.

If you own rental real estate in Orlando or the surrounding Central Florida locale, give us a call for more details on how we can make your life as a landlord much easier.