Sometimes short-term real estate loans are all you need. If you don’t need the low payments of a traditional 30-year loan or you need money quickly, short-term loans provide the financing in a much shorter time frame.
Short-term real estate loans aren’t for every situation since you must pay them back in full much quicker (usually less than 5 years). For example, if you’re buying a home for your primary residence or must borrow more than 70 percent of the home’s value, longer-term/traditional financing is better. But for many investors, short-term financing provides a great solution.
Check out the most common reasons to consider it.
Fix And Flip Properties
If you found the perfect home at the perfect price, you need funding now. Long-term financing isn’t necessary since you’ll fix and flip it. If the repairs are minimal or won’t take long, you can afford a short-term loan, paying interest-only for the time you have the loan, paying it off in full when you sell the home.
The idea is to fix and flip the home quickly for the greatest profit. When you turn it quickly, you won’t have the carrying costs you’d incur if you kept it on your inventory for many months. Short-term loans give you instant access to cash, allowing you to get the renovations going right away.
Your Credit Isn’t Great
Short-term loans don’t rely on your creditworthiness, but rather the property’s value. If you’re trying to increase your real estate investment portfolio but have less-than-perfect credit, a short-term loan provides the funding you need as long as the property’s value is high enough.
Lenders rely on the property’s value because they can take possession of it if you default on the loan. While this doesn’t mean you can have ‘terrible’ credit, as lenders do consider your financial situation, they have more lenient guidelines when the property appraises for a high enough value that more than covers what they lend you.
You’re Short On Cash
Sometimes we come across the best real estate investments but don’t have the cash to pull it off fast. The best deals disappear in a flash, as there are hundreds of investors just like you vying for the same deals. When you’re short on cash, you can’t just swoop up the property and make a profit.
Waiting for traditional financing to go through takes 30 – 45 days, by that time someone else will have taken the property off the market. Short-term financing provides much faster access to the capital, enabling you to be that investor that takes advantage of the best deals, turning quick profits, and increasing your investment portfolio.
There’s A Lot Of Competition For The Home
If you’re in a bidding war, sellers have their pick of buyers. If you have short-term financing, you may stick out as a favorable buyer. Sellers know traditional financing takes a long time and can fall through. This increases the seller’s carrying costs and time on the market, neither of which they want.
With hard money loans, they know you’ll have the cash within a week or so, closing the sale and letting the seller move on – which is what many sellers want.
You Can Get More Deals
Most real estate investors want a diversified portfolio but can’t afford to buy them with the cash-on-hand. Short-term loans provide the capital you need to diversify your portfolio, enhance your income, and make you a real estate investor to be reckoned with within the area.
Whether you fix and flip or buy and hold, short-term loans help provide the funds needed to buy or fix the properties. Using your profits from the sale of specific properties in your portfolio, you can pay the loans off and reap the profits of owning real estate.
Short-term real estate loans have many benefits. Knowing when it’s appropriate and most affordable is the key to successful real estate financing. Whether you don’t want to tie up your cash or don’t have the cash but want to increase your real estate investment portfolio, short-term financing helps you achieve your goals. Compare your options and get the loan with the most lucrative terms, allowing you to invest in real estate the way you want.