As an asset-based loan, hard money loans for real-estate are effective for several types of properties. Each hard money lender often has its niche within the real-estate world that they have the expertise on and are comfortable to provide loans. The majority of hard money lenders offer loans for residential properties, but in some cases will also provide loans for commercial properties. These property types include single family, residential, commercial, retail, industrial, hotels, healthcare spaces, office buildings, and properties, and individual purchase properties. Not all lenders provide for these types of properties, as they prefer to loan to properties that are easier to sell. Many real-estate investors that look to obtain hard money loans are looking to fix and flip properties.  The goal of a fix and flip is to purchase property, renovate it, and then sell for profit. Hard money lenders not only determine the value of the loan by the value of the property as is, but the lender will also determine the property value after the completion of its renovation or investment. The hard money lender will look at the property’s sale value in deciding how and when they will be paid back for their loans.

 

Hard money lenders also take into account whether the property is owner-occupied vs. non-owner occupied. Most hard money lenders will not provide loans to owner-occupied properties as there are added regulations that the lender must comply with. Owner-occupied properties will often come with more paperwork and licensing that will slow down the process of the loan. On the other hand, non-owner-occupied properties can be approved and funded quickly as there is no government regulation or licensing that must go into the investment.

 

There are three main types of properties that hard money lenders look for when giving out loans. Hard money loans are most useful and practical for these three types of properties. The first, being loans for new construction of one-three family homes. The second, are loans to finance purchases and renovations of a quick sale property or fix and flip. The third, being bridge loans that are used to purchase smaller income properties. These types of properties are great for hard money loans as their typically best suited for a short-term investment. Most construction and renovation projects operate on shorter timelines which makes hard money loans the most beneficial to the borrowers. These properties are the collateral needed to apply for the loan by using the value of the property post renovations, as well as the cost of the overall construction. 

 

For a borrower to receive hard money loans, all properties must reach the criteria above and must also provide the correct loan-to-value. This means that the loan must not exceed 75% of the property value and/or up to 80% of the construction costs. With this in mind, there must be a compelling exit strategy for selling or refinancing the property, followed by equity participation from the borrower, personal guarantees from the borrower, and agreement to monthly interest payments. A hard money lender will take all of this into consideration when deciding on the factors of the borrower’s loan.