The primary reason why hard money is considered to be more expensive than traditional financing is because of the interest rate. It's true that lenders such as The Hard Money Co. have higher interest rates than you will see in other industries. But when you look deeper and consider all of the factors, the benefits of hard money and the price you pay in interest become an increasingly attractive offer. If you're interested in real estate investing and are stuck wondering how hard money interest works, let us be your guide to help demystify the process.
What are hard money interest rates?
It's commonly accepted that hard money loans' interest rates are higher than other financing methods. At The Hard Money Co. our fixed interest rate is 15%. We charge this rate to all of our borrowers no matter if they are longtime investors with perfect credit, or first-time borrowers we keep our rates consistent. We didn't arrive at this number by accident. It is the rate we can charge while still being able to provide the value to our borrowers that they've come to expect. This value comes in many forms including expedited closings, constant communication, same-day payment processing, and more. If we were to cut corners on our rate, we would have to remove these offerings to our customers and our product would no longer be valuable to real estate investors who are competing in a fast-moving market.
We know we're more expensive than traditional banks or lending institutions, but at the end of the day, we're providing different services. Your Main Street bank won't lend on investment opportunities, particularly for distressed assets that make real estate investments so lucrative. Even if they did, the process would be lengthy and filled with complicated (and costly) due diligence.
At The Hard Money Co., we work quickly and efficiently because we understand your investment goals.
How does interest accrue in a hard money loan?
At The Hard Money Co., our loan term is only 6 months and payments remain interest-only until the due date. This means that the capital you borrowed to finance your investment can be put to work how it was intended. When you've completed your renovation and sell (or refinance) your property, you pay down the balance of the loan in a balloon payment and pocket the difference as profit. Our goal is to get you in and out of loans quickly to help you build your real estate portfolio. The longer it takes, the costlier it can be for lender and borrower alike.
How much will I pay in interest over the life of the loan?
The Hard Money Co. charges a flat 15% interest rate on all of our loan products. We also require interest-only, monthly payments throughout the loan term. This makes the interest calculation relatively simple; interest will essentially cost you 7.5% of your total loan amount if you pay on time and your investment goes as planned. This means that a $100,000 loan through our company will cost $7,500 or monthly payments of $1,250.
Now compare this to loan products provided by big banks. With current mortgage rates of nearly 7.5% and terms that require repayment of the principal on a monthly basis, you will be faced with a nearly $1,200 monthly payment on a 10-year loan. Yes, you are paying down your principal amount, but those savings are quickly erased the longer you stay on your loan. As interest rates continue to creep up across the country, hard money is becoming comparatively cheaper by the day.
This doesn't even take into account the benefits of hard money that make it the go-to solution for real estate investors.
What are the benefits of hard money?
Hard money lenders are real estate investors at heart. At The Hard Money Co., our team is built from people who have real-world experience as investors and know what it takes to get your deal across the finish line. Moreso, our terms are designed for investors to move quickly and maximize the potential of their investment. Unlike traditional lenders, we are able to close deals quickly giving you a leg up on your competitors. We also don't require credit checks, income verification, or property appraisals which only create barriers to getting deals done.
It's also important to note that banks may not lend on distressed assets in today's economic climate. When they see a run-down property, all they see is a liability. We see these assets for their potential, which is why we lend based on the After Repair Value (ARV) of the property. This gives you access to more capital than other financiers could offer, and allows you to maximize your leverage.
Conclusion
We value transparency in our business which is why we explicitly publish all of our loan terms. If you are curious about what a loan through The Hard Money Co. might look like, we encourage you to use our loan calculator. When you have your figures in hand and property in mind, submit an application through thehardmoneyco.com and start your journey as a real estate investor.