When looking at purchasing an investment property you may be wondering what type of loan is best when you purchase a property. There are many routes to go, and you may be curious about whether hard money loans could be the right thing for you. Here are some pros and cons to hard money loans that you should consider before taking one out to buy property.
Pros:
- Fast: You can get hard money loans much faster than traditional home loans. This makes them quick, and you can get the money for the home without all of the red tape and stipulations.
- Leverage: With hard money loans you can quickly use them to increase your capital, thereby increasing your leverage in the business world. This means you are making other people’s money work for you, rather than finding a ton of your own money to do the same work.
Cons:
- Interest Rates: Due to the fast nature and low stipulations of hard money loans, the interest rates can be very high. They can be as much as 18%, or comparable to a credit card. With great rewards and risks comes higher interest rates.
- Higher Risk: Since these loans have high interest rates and are much shorter term, they can quickly become a financial burden if you are not able to make the money to pay them off. Lenders are investing in your high-risk plans, so they expect a lot in return and that can be difficult to deal with if your investments do not pan out as expected.
While there are many pros and cons to hard money loans, they are worth considering in some cases. Make sure to research whether hard money loans are right for you when purchasing your next property.
