As a real estate investor, you've probably heard of hard money lenders. But what exactly is a hard money lender, and should you use a local or national one? Let's break it down.
A hard money lender is typically an individual or organization that loans money to real estate investors for the purchase and renovation of investment properties. Hard money loans usually have higher interest rates than traditional bank loans and are shorter in terms, usually around 12 months.
So, what's the difference between using a local hard money lender vs. a national one? There are pros and cons to both. Here's a rundown of each:
Local Hard Money Lenders
The main advantage of using a local hard money lender is that they understand the local market. This can be helpful if you're new to investing in a particular area. Local hard money lenders may be more flexible with their loan terms and willing to work with you to get the best deal possible. Furthermore, they can provide guidance and insight before getting into a deal by providing knowledge and expertise that comes with years of experience in the local market. The relationships they have with realtors, brokers, and other investors can provide immeasurable value in your real estate career.
The downside of using a local hard money lender is that they may not have as much money to lend as a national one or they may not be able to offer a rate as low as national competition.
National Hard Money Lenders
National hard money lenders may have more breadth of experience and offer more financing options than local ones. They also tend to have lower interest rates because they're competing with other national lenders for your business.
The downside of going with a national hard money lender is that they may not understand the nuances of the local market as well as a local lender would. By becoming a national hard money lender, these companies lose what makes the financing option appealing in the first place. Often times, they will put you through underwriting procedures similar to those of a traditional bank including credit checks, income verification, and the like. Additionally, it can be more difficult to build a rapport with someone who's based in another state or country. Watch out for hidden fees and nuances in your loan agreement!
Conclusion:
Ultimately, the decision of whether to use a local or national hard money lender comes down to what's best for your particular situation. However, if you have good credit, do not need to close quickly, and do not mind furnishing tax returns, a national lender may be right for your situation. If you're new to investing in a certain area, need a mortgage with no credit check, or need to close quickly, working with a local hard money lender will give you the ultimate advantage.
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