The Logic Behind Real Estate Loans For Investors

Real estate loans for investors bear high interest rates when compared to traditional loans

. It seems illogical to use them instead of seeking loans that come with lower rates. But why do real estate investors keep on using them to finance their deals? Have investors lost sanity? Or are they seeing something that common people do not understand?

It is interesting to note how common people criticize hard money lenders, or those who provide such loans to real estate investors. People say that these creditors are loan sharks because they use interest rates that are sometimes considered ridiculously high. Some people shake their heads in disgust when they hear that providers of real estate loans use a 12% rate. Real estate investors though know better. They use this form of financing because they understand how it really works. They know that hard money lenders are fit for their businesses, especially for those who are into rehabbing houses.

This form of financing works using the OPM logic. OPM stands for Other Peoples Money. While it appears a burdensome choice because of the interest rate, hard money loans allow in investors to proceed with their deals OPM. For example, if a rehab investor needs $50,000 to purchase a rundown house and another $20,000 to improve its condition so it can be sold for around $100,000. If he went to a bank, he will only get $50,000 because thats how much he needs to purchase a property. In this situation, if the investor does not have extra financing, the deal will not push through.

With real estate loans for investors, the deal gets a bigger chance of materializing. Since hard money lenders are also considered investors funding only the deals that they think will yield profits they help the real estate investor come up with all the money he needs to make the deal happen. The lender will base the amount of the loan not on the price of rundown house, but on the value of the property after the investor completes all the repairs and improvements on the property. If the creditor decides to give 70% of the after repair value to the investor, then that investor will be able to buy a property, repair it, sell it, and profit from it without using his own money. Thats OPM investing.

Does it make sense now? And oh, that 12% is usually an annual rate. That means that if you are able to repay the loan in six months, and chances are you will, youll only pay a 6% interest. Go to RehabHardMoney.com right now to start investing OPM.

by: Richard Griffith

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