People who are up to fixing up or rehabbing rundown properties rely on hard money loans and arranged funding for their projects. When one gets his/her hands dirty with a hard money loan business, he/she brings investors searching for high interest on their funds. Besides, it allows them to rehab borrowers together.
The housing industry is growing with drastic agility, and due to this reason, a lot of rehabbers are looking for trustworthy San Antonio hard money lenders or that of any other region. These lenders serve well as primary lending sources.
Hard money loans – How does it work?
Hard money loans can be defined as short-term loans, with tenure of 6 months to 2 years. Typically, these loans work based on the interest-only payment module that’s amortized over thirty years. A person borrowing such loans requires paying a balloon amount at the end of the loan to repay the principal.
Hard money loans generally cover from 60 to 80 percent of the properties’ ARV or After Repaired Value. High interests, lender fees, and loan derivation points are considered as the leading attributes of hard money loans.
Starting with hard money loans – Setting up the business
When an individual wants to set up a hard money loan business, he/she needs to start with setting up the business. The first step is to select the type of business structure. One may go with modules like limited liability companies or C corporations.
Once the module is selected and the business has been set up, it’s time to gather the desired level of exposure. The best way to do so is, starting with vigorous advertising. The best way to find borrowers, as well as investors, is by running ads in the local newspapers, website classified ad directories, and social media.
Enhancing the network and gaining an idea about the market
One can consider joining the local property investor group to be a part of a huge network of investors and borrowers. In case one is not aware of the process of valuing rehab real estate, partnering with someone who has extensive knowledge will turn out to be profitable.
To start as San Antonio hard money lenders or in any other city, one can also consider seeking the help of a reliable attorney who can get contracts from the investors and borrowers when required.
Knowing the concept of interest rate and points income
The interest rates for hard money loans usually range from 8-18%, depending on the loan amount, properties’ ARV, and the borrower’s credit history. While a borrower with an excellent credit score may avail of the loan at a lower interest rate, the one with a poor score may end up paying a higher rate of interest.
For example, if one makes an interest-only loan for $3,000,00 at 10%, then the monthly interest income of the San Antonio hard money lenders or in any other region will be $2500. However, the lender can charge 15-18% interest and earn more for a person with bad credit.
The other format of income from hard money loans is points income. A point is the fee, which a borrower pays to the lender for arranging the loan. This depends on the borrower’s credit and the loan amount. Usually, points have a 1-1 correspondence with interest. To clarify, a loan with 1 point translates into 1% of the entire loan amount.
This is how the earning module of the hard money lenders looks. Indeed, it’s a business that offers lucrative earning opportunities apart from serving the noble purpose of helping people in need.