Short-Term Hard Money Loans vs Long-Term Hard Money Loans: Which Is Better?
The Investor's Edge has been in the real estate investment business for over a decade and we’ve seen every type of loan a company can offer. There are many hard money lenders out there who specialize in short-term loans, or loans with a term of two or five months. Other hard money lenders offer significantly longer loan terms. We’ve seen some companies offer loan terms of 13 months, and others up to ten years!
So, which loan term is right for you? There are many variables involved to consider, which is why we’ve decided to do the hard work for you. This way, you can hit the ground running right away with your profitable real estate investments. Here’s everything you need to know, plus the pros and cons to short-term hard money loans and long-term hard money loans.
A long-term hard money loan is similar in length to the terms of an auto loan. Depending on which hard money lender you go with, you can have the luxury of years to pay back your loan.
A long-term hard money loan is best used for more complicated and involved fix-and-flips. For example, suppose you come across a dilapidated property in a phenomenal neighborhood. You see dollar signs immediately and start the usual round of inspections and evaluations on the property. You discover that the property needs a ton of work. There are small cracks in the foundation which need repair and the roof truss needs some significant work. You also need to completely replace the wiring and plumbing systems and repair some flood damage. The rehab is possible, but it will take a great deal longer than two or three months to complete. Most likely, the repairs can all be made in nine or ten months. Therefore, you decide to go with a longer-term hard money loan for this investment deal.
A long-term hard money loan is best used for those who are experienced and already have capital. Since the rehab is extensive, it’s better to take on this type of deal if you are already an experienced flipper. You also may need some gap financing for this deal. Therefore, if you already have a great deal of capital to invest, this deal could be perfect for you.
The Pros to a Long-Term Hard Money Loan:
The Cons to a Long-Term Hard Money Loan:
A short-term hard money loan is the most traditional loan used for fix-and-flip deals. It is designed to help you achieve your profit as quickly as possible. Usually, you will only have two-to-three months to rehab and resell your profit. Some hard money lenders offer an extension of a few extra months, if needed.
A short-term hard money loan is best used for fix-and-flips requiring minimal repairs. Since you only have a few months to fix-and-flip your property, you need to make sure the required repairs aren’t extensive. For example, you will want to stay away from deals which have foundation or roof truss damage, or fire and mold damage exceeding a cost-to-cure of $5k. The type of deals you want to secure with a short-term hard money loan are those requiring cosmetic repairs, or minor repair work. If the kitchen needs an upgrade or the yard needs a bit of work, you can easily take care of that in a few months and sell your property for a phenomenal profit.
A short-term hard money loan is best used for first-time flippers with little capital. Many new investors get into real estate fix-and-flips to quickly get out of debt and improve their credit. The best hard money loans for new investors are short-term loans. These loans get them their profit in just a few months. Also, these loans can be secured with very little capital. Some hard money lenders require down payments, but the best lenders won’t require any down payment. They can help you get started with little capital and even a poor credit score!
The Pros to a Short-Term Hard Money Loan:
The Cons to a Short-Term Hard Money Loan:
Now that you know which hard money loan is best for your next project, you can start achieving phenomenal profits right away! The Investor's Edge is here to help you with your next profitable investment deal. Even with no experience and poor credit, we can help you open the door to financial freedom, get out of debt and save for retirement in one fell swoop. You can even quit your dull day job and start your own lucrative REI business!
Learn how all of this works by registering for our next webinar.