Hard Money Loans: Finance Terms Are Shorter Than You Think
Hard money loans are often used for short term needs such as real estate investment acquisitions. These loans are usually financed for 30 days to five years.
In contrast a traditional mortgage is available for 10 to 30 years. However when purchasing a distressed or vacant real estate property, it is difficult to obtain a traditional mortgage.
For this reason, hard money loans are commonly used by real estate investors for new acquisitions.
Here’s an example:
A real estate investor finds an apartment complex for sale.
This complex is in complete disrepair and vacant.
It is very difficult to get a mortgage on distressed or vacant real estate that is not generating income.
This real estate investor has two options to purchase this apartment complex, since they cannot get a conventional loan
- Receive a loan from a partner, friend, or family member.
- Use a hard money loan to buy the property. The hard money loan will also cover cost for repair needed on this apartment complex.
Once the property is rehabbed and ready for rental, which could take 6 months. The real estate investor obtains a conventional mortgage to repay the hard money loan.
This is an example of a short term loan used to acquire a property but not intended as permanent, traditional financing.