Hard money rehab loans are a great way for investors to leverage the cash they have available in today’s real estate market. Many investors, however, don’t know a lot about rehab loans, who to talk to and what to expect from a hard money loan in general. We’ll take a look at these types of loans in detail, and also point you in the direction of a great resource to help you find funding for these transactions.
A hard money rehab loan is a short term bridge loan made using an after repair value of a property. These loans are made by individual investors, so bank underwriting guidelines don’t apply. These loans are typically priced in the double digit interest rate range, and can cost up to 10 points. An average transaction may go out the door at 13% and 7 or 8 points, which is expensive even by hard money standards (but it is still much less expensive than a partner)!
When talking about hard money rehab loans, there are two factors that play into the added expense. Number one is the aggressive nature of the loan amount. These loans are typically placed using an after repair value. So this is a hypothetical future value, assuming all work is completed on budget as presented. Many times, the loan amount offered on these types of loans is equal to or greater than the purchase price! That is pretty aggressive, and hence bears a higher cost.
In addition, the nature of these loans is short term. These loans are usually written for anywhere from six months to a year. In addition, they are typically written with no prepayment penalty. Many of these rehab loans are paid off within 60-90 days. So the investor has just made a very aggressive loan, but only makes 2-3 months worth of interest on it. Due to this, these loans are typically cost heavy on the front end, to ensure a return on investment.
In addition, these loans have more moving parts than other hard money loans do. Typically they include a fund control account, so all the money needed to complete the rehab is disbursed as the work is being done. They will also have an interest reserve account which will make your monthly payments for a set amount of time.
To speak with a professional who specializes in these types of loans, visit this rehab loans page.