Real estate has consistently outperformed stocks, bonds, and other investment types over the long term, making it a top choice for investors seeking strong returns. One reason real estate stands out is the ability to leverage your investment. Almost all real estate investments allow you to borrow additional money against your initial investment, amplifying your ownership and potential returns.

For financing, investors typically choose between institutional lenders, such as banks and insurance companies, and private money lenders, often called “hard money lenders.” Both have their advantages, but understanding their differences is key to selecting the right financing for your real estate investment goals.

Understanding Hard Money Loans

What Are Hard Money Loans?

Hard money loans are often described as “asset-based” loans, meaning the lender focuses on the value of the collateral property rather than the borrower’s personal financial statement. In contrast, institutional loans are typically “credit or cash flow-based.” Banks might lend up to 80% or more of a property’s value, while hard money loans generally max out at 65% loan-to-value (LTV).

How Hard Money Loans Differ from Traditional Loans

Hard money loans offer distinct advantages:

• Faster Closures: These loans can close in as little as one week, whereas mortgage loans from banks might take a month or more.
• Flexible Terms: Typically short-term (1-2 years), as opposed to the 5+ years of traditional loans.
• Interest-Only Payments: Hard money loans are usually paid on an interest-only basis, while institutional loans often include monthly payments that reduce the principal

Why Real Estate Investors Choose Hard Money Loans for Rental Property Loans

In a competitive real estate market, securing a “good deal” can often come down to speed and certainty. Investors using hard money loans can frequently obtain prior loan approval and submit bids without a financing contingency, giving them a significant advantage. Sellers often value the certainty of closing over a higher offer with conditions, especially when banks take weeks or months to finalize loan decisions.

The same benefits apply when purchasing retail, industrial, multi-family, or single-family rental properties. Certainty of execution is one of the most valuable factors for sellers to consider.

Additional Benefits and Drawbacks of Hard Money Loans

Benefits

Hard money loans offer unique advantages:

• Rapid Loan Underwriting: Approval and funding are faster than traditional loans.
• Immediate Decisions: Hard money lenders can approve unconventional or “out-of-the-box” deals.
• Local Expertise: Many hard money lenders operate locally, giving them a deeper understanding of the market.

Drawbacks

However, hard money loans also have drawbacks:

• Higher Interest Rates: Compared to conventional loans, these loans typically come with slightly higher rates.
• Shorter Loan Terms: Terms are usually 1-2 years, which may require refinancing or quick repayment.

Savvy real estate investors must weigh these pros and cons when choosing a lender.

How to Find the Right Hard Money Lender

Finding a reliable hard money lender is critical for successful investing. Here are some tips:

• Go Local: A local lender will better understand your property’s market.
• Seek Referrals: Attorneys, CPAs, or commercial realtors are excellent sources for trustworthy recommendations.
• Research Loan Terms: Pay attention to interest rates, fees, default rates, and closing times.
• Check Reputation: The lender’s reputation is arguably the most important factor. Word of mouth and online reviews can help you separate reliable lenders from the rest.

Why Montegra Should Be Your First Choice For A Colorado Loan

Montegra Capital Resources, LTD has been a trusted provider of hard money bridge loans for 54 years. As a direct lender, Montegra has the capital to make decisions in-house and fund loans directly, ensuring a seamless process for borrowers. We’ve built a reputation for reliable lending in Colorado, funding and servicing every loan in-house. Montegra offers the speed, flexibility, and reliability you need to make your next real estate investment a success. Apply online or contact us today to get started.