When evaluating how much private money loans cost, you need to understand debt. One of the first lessons of debt is that there is good debt and bad debt.
Bad debt – Debts that cost you money every month and are consumption-based, like taking on debt to go on vacation.
Good debt – Debts that help you grow an asset or ultimately make you more money and/or increases your rate of return.
When used properly, hard money loans on investment properties are designed to increase your profits and the percentage you earn on your money invested. Read on below to learn more!
Private money lenders lend money to you in exchange for collateral (like real estate) as security. These lenders typically fall into three different categories:
If you don’t have any friends, family, or coworkers who will lend you money or you are uncomfortable asking family and friends, a hard money lender is your best bet. Establishing a relationship with a hard money lender is critical to your success as a real estate investor if you ever plan on scaling and to increase your rate of return.
This is actually the wrong question to ask. The right question you should be asking is “How does a Private Money Loan increase my ROI (return on investment)?”
First, let’s answer the question on direct costs. Private money lenders differ in the rates and terms they offer on loans. What you can get depends heavily on your finances, credit score, purpose of the loan, and your personal track record. Really the best way to understand what you can get is to call an adviser and speak with them about your specific situation and what you’re looking for.
Generally, though, you can expect the following terms with a private money loan:
Private money loans are usually short term, with the typical time period being 9-18 months. Moreover, the time for approval of a loan can be as little as 3 minutes if you know what a hard money lender needs to approve your loan. You can normally receive funding in under 15 days as well.
Although private money lenders are far more accepting of bad credit or fair credit, we still usually recommend having a score of 620 at minimum. If you find all the requirements up your alley, get a private loan to fulfill your needs.
|Hard Money Loan||Cash Deal|
|Total Project Cost||$273,000||$258,000|
The above scenario shows why hard money loans are seen as good debt and, when leveraged properly, can drastically increase your rate of return. Funding the deal with cash, the borrower generates a net profit of $56,700 using an investment of $258,000 of cash. This gives them an ROI of 22 percent.
With a hard money loan, the borrower generates a net profit of $41,700 on a $43,000 investment, which equates to a higher ROI of 96 percent.
Ready to get pre-approved for financing? Contact Gauntlet Funding today to learn more about your loan options and how we can help you get the capital you need. Contact us online by clicking the button below or simply call us at 631-465-2161.
How Much Does a Private Money Loan Cost? | Gauntlet Funding – Melville, NY