Real estate, in general, can be a very expensive business to involve yourself in. If you work as an agent most likely you will have to pay for your tests and license. If you are in the business to fix and flip a property you will spend money on the home, as well as, local advertising. Maybe you are just a regular person that wants to buy a new home. Either way, you need money. Sometimes you may need help paying for some of your expenses.
For most people, this extra cash will come from the bank, however, if you are in a time crunch a residential hard money lender will work for you. A loan from a hard money lender would work great for contractors, as well. Think of all the instances where something went awry during the construction process. When building stops you lose time and potentially thousands of dollars.
On average, it costs about $125 per square foot under normal construction. This means if you were to begin building a 3,000-square-foot home it would cost about $325,000. Most likely this is before all the additional after-market enhancements you may want to add. This is where loans will most likely come in. If you choose the hard money route, most likely you will have to do a combination loan package.
Usually, contractors will apply for a construction loan that will likely last the duration of construction. The second loan is a permanent loan that is used to pay off the first loan. When shopping for two loans you must also remember to look for more than one lender. Some bank will not allow you to take out multiple loans at the same time. If this happens to you a residential hard money lender should be able to give you the money you need fairly quickly.
Be mindful of the hard money loans that you borrow.
When it comes to hard money loans, borrowing during construction can be very risky. Having the extra money can be helpful if you are in a tough bind. Usually, a residential hard money lender will let a client borrow a short-term loan that lasts from about six months to a year. In that time—if you plan to sell the property—you want to find a buyer fairly quickly. Depending on the progress of the project your timeframe can be pushed off. In some cases, construction can halt for a year or more.
If you are lucky you could possibly be able to have your interest rate lock for a specific amount of time. This is contingent on the lender being lenient and is based on the figures you have already given them. If something goes wrong, they could deny your request.
Do you need a hard money loan for construction?
Maybe you do need extra for the renovations that you want to do on your new rehab. Before you take on more expenses and bills make sure the property that you are working on will bring in revenue. You do not want to be stuck with a loan after all the work is done.
Dennis Dahlberg Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.