Hard Money Loans and Bridge Loans Help You Fund and Flip Property

In 2021, the home flipping business saw a major increase in profits, reaching an average of $66,300 more than what was paid for the house. This achievement was made even though many businesses were affected by the COVID-19 pandemic and the restrictions it caused in 2020.

In 2020, investing in house flipping was profitable in several cities, including Hartford (Connecticut), Rochester (New York), Milwaukee, Austin (Texas), Philadelphia, San Jose, San Francisco, San Diego, and Washington, DC. These cities had the most significant increases in returns on investment from flipping

As the trend of purchasing and renovating houses to resell grows in popularity, more and more people are joining in. However, they often don't have enough money to finance the project. Fortunately, there are two types of short-term loans, hard money loans and bridge loans, that can be used to help fund a flipping business. Here, we'll learn more about these two:

What Are Hard Money Loans?

Hard money loans are a type of short-term loan that is secured by real estate. These loans are typically used by real estate investors who need to close a deal quickly or who cannot obtain traditional financing. Hard money loans are funded by private investors or groups and typically have shorter loan terms than traditional loans.

Because hard money loans are secured by real estate, the lender is less concerned with the borrower's credit history and more concerned with the value of the property. Hard money loans are typically based on the property's loan-to-value (LTV) ratio, which is the ratio of the loan amount to the value of the property. Hard money lenders will typically lend up to 70% of the property's value, although this can vary depending on the lender and the borrower's circumstances.

Hard money loans typically have higher interest rates than traditional loans, ranging from 

8% to 15% or more. They also often come with higher fees, such as origination fees and prepayment penalties. However, because hard money loans are designed for short-term use, the higher interest rates and fees are often outweighed by the benefits of quick funding and flexible terms.

What Are Bridge Loans?

Bridge loans are similar to hard money loans in that they are short-term loans that are 

secured by real estate. However, bridge loans are typically used to bridge the gap between the purchase of a new property and the sale of an existing property.

For example, let's say you own a property that you're trying to sell, but the sale hasn't closed yet. You find another property that you want to buy, but you don't have the cash on hand to close the deal. A bridge loan can be used to fund the purchase of the new property until the sale of the existing property is complete.

Bridge loans are typically easier to obtain than traditional loans because they are based on the value of the properties being used as collateral. Bridge loan lenders are less concerned with the borrower's credit history and more concerned with the value of the properties. Bridge loans typically have higher interest rates than traditional loans, ranging from 6% to 12% or more.

How Can Hard Money Loans and Bridge Loans Help You Fund and Flip Property?

Hard money loans and bridge loans can be valuable tools for real estate investors who need quick funding or who cannot obtain traditional financing. These types of loans can help you fund your next fix and flip project, allowing you to purchase properties and make necessary repairs or renovations.

Because hard money loans and bridge loans are designed for short-term use, they can help you move quickly on investment opportunities. You can use these loans to purchase properties that you might not be able to obtain with traditional financing, and then use the profits from the sale of those properties to pay off the loans and fund future projects.

Conclusion

If you're a real estate investor, hard money loans and bridge loans can be valuable tools for funding your fix and flip projects. These types of loans are designed for short-term use and are secured by real estate, making them easier to obtain than traditional financing. While they do come with higher interest rates and fees, the benefits of quick funding and flexible 

terms often outweigh the costs.

If you're considering a fix and flip project, talk to a hard money lender or bridge loan lender to learn more about how these types of loans can help you achieve your investment goals.

Jaken Finance Group specializes in providing financial solutions that other lenders may not be able to offer. People who have been investing for a while, as well as those who are new to investing, come to us to find a way to make their investments successful. Ask us about our bridge loans and hard money loans today!