Should Your Project Be a Rental or a Fix and Flip?

When you’re looking at a potential investment property, one of the most important questions you’ll need to answer is whether the property is better suited as a rental or a fix-and-flip project. This is one decision that even some of the most experienced investors struggle with.

If you’re considering a real estate investment and aren’t sure which route will be best, there are some considerations you should keep in mind to help you make the right choice.

The Property’s Current Condition

The current and overall condition of the property, as well as its age, should play a major role in your decision to either buy the property as a rental or flip it. Generally, older properties will require more long-term maintenance and upkeep, which tends to make these homes better candidates for fix-and-flip investments.

Meanwhile, a newer property that needs some up-front work but is otherwise in decent condition may be more suitable as a rental. The exception to this may be a property that is located far away, which can create additional headaches for you as a property manager/landlord. If you’re investing in a property from afar, your best bet is typically to treat it as a fix-and-flip (unless you’re comfortable shelling out monthly fees for a property management company’s services).

Local Real Estate Trends

You’ll also want to consider local real estate market trends when deciding whether to buy a property as a rental or a fix-and-flip. While there are currently more renters in the residential real estate market than ever before, this won’t necessarily be the case in the exact area where you’re looking to invest. Taking some time to truly get to know your local real estate market and whether people are looking to rent or buy can make your decision a much easier one.

Your Budget and Preferences

If you’re looking for a property that can start generating income for you sooner rather than later, then a rental may make more sense. On the other hand, flipping a property rather than renting it out can prevent your money from being tied up in any single real estate investment for too long.

Of course, part of your decision to rent or flip will ultimately come down to personal preference. Some investors simply don’t like the hassle of playing “landlord” and would thus refer to flip and property, sell it, and be done with it. Likewise, other investors may enjoy the long-term income string that a rental property can provide.

Need a Hard Money Loan?

Regardless of whether you end up flipping or renting out an investment property, you’ll need to secure the right funding to get started. If you’re searching for a hard money loan for a real estate investment property, IMC Money is here for you. We offer a wide range of hard money loans and other financing options to suit your needs. Contact us today to find out more about our services!

How Do You Find Fix & Flip Opportunities?

If you’re interested in getting involved in fix and flip opportunities, the first step in the process is learning how to find properties. The key is to find properties offered at a low price that don’t require more work than you can handle. The good news is there are several ways you can find the ideal property to fix and flip for a profit when you know where to look.

Foreclosure Sales

While you will need cash to make this type of purchase, foreclosure sales are an excellent way to find properties, usually in relatively good condition. Anyone can fall on hard times and fall victim to foreclosures. Be sure to check the foreclosure listings in your local paper often so you can check out properties before the sale hits and you know which ones you want to try to buy. These sales typically require 10 percent of the purchase price as a down payment with the remainder due within 30 days, giving you enough time to secure a loan for the rest.

For Sale by Owner

Many homeowners attempt to save money by selling their homes without the assistance of a realtor. You can often get these homes for less than going through a realtor because homeowners are typically more flexible when they don’t have to deal with realtor fees. They also often want to sell quickly, making them more likely to accept your offer.

Take a Direct Approach

Another option is to drive around areas you’re interested in working in and look for homes that show signs of neglected upkeep. These homeowners may have either moved away or may not have the ability or money to take care of the home properly. Approaching these homeowners directly could result in someone selling to you when they were simply holding on to the property to avoid the hassle of selling it. Homeowner information is often available in property tax records.

Probate Court

When a family member passes away, families often struggle to figure out what to do with a home their loved one left behind. They are also more likely to accept a lower offer simply because they have no need for the home and want to get rid of it quickly so they can split the money between the next of kin. Check local newspapers and other resources to identify properties that have entered probate. This process can take anywhere from a few months to over a year so be mindful of that. Reaching out to the executor of the estate can expedite the process.

Tax Auctions

Foreclosure isn’t the only reason people lose their homes. Those who fall behind on their property taxes may find their home is sold at a tax auction instead. However, you must register as a bidder prior to these auctions to take part. There are two types of tax auctions. You want to look for tax deed auctions where you buy the property outright versus tax lien auctions that simply make you the homeowners landlord with the potential for foreclosure if payments aren’t made.

Rental Properties

A final option is to look for rental properties, especially those that seem to advertise for a long period of time between tenants. Sometimes landlords grow tired of dealing with tenants and would rather sell the home than continue renting it. However, don’t be discouraged if you’re turned down for your offer to buy.

Tips For Flipping A House For The First Time

Flipping a house for the first time can seem a little intimidating. However, if you follow these tips, it should be smooth sailing.

Know and Analyze the Local Estate Market

It’s important to know the neighborhoods you want to invest in like the back of your hand. You need to familiarize yourself with the sales prices for different types of homes, schools, neighborhoods and demographics. Real estate sites like Trulia and Zillow can give you some data on current home selling prices. And you get the rest of the information from other local realtors. Once you get this information together, go ahead and analyze it. By analyzing the data, you’ll know how much local buyers are willing to pay and you’ll know the types of properties that buyers are interested in buying. Knowing this information will allow you to avoid winding up with a home that sits on the market for a while versus one that flips quickly.

Get a Team

Building yourself with a skilled team is critical for a successful flip. You’ll need a team of general contractors, realtors, lenders, accountants and real estate attorneys. You get a team together through referrals and networking. Start to go to meetings of local real estate investment organizations, join some business networking groups and become a member of the chamber of commerce. Realtors can give you access to properties that are currently on the Multiple Listing Service. You should speak to as many realtors as you can. This includes both selling and buying agents. Having a team is essential for a profitable flip.

Find a Flippable Property

Once you’ve identified what types of homes sell best, focus on those ones. For example, if four-bedroom houses are selling well, rehabbing one of these is likely your best bet. In addition, you need to know who your likely buyers are. It may be empty nesters, seniors or singles. Know what their needs are. A family with young kids may need a four-bedroom home with two bathrooms.

Keep an open mind, too. Your leads may wind up coming from a variety of sources, such as friends, banks, realtors, family members or trustee sales. Another good source for flappable properties is foreclosures. Just keep in mind that you’ll probably need a cashier’s check or cash to pick up a foreclosure. You also may not be able to view the foreclose. So, you may have to deal with squatters or hidden liens on the title.

Structuring the Deal

Once you’ve established the value of the property, you then need to calculate the after repair value. This will tell you if it’s a good deal for you. When you inspect the property, work with a good general contractor and review the budget repair sheet. You need to know all the repair costs in order to determine the after repair value. Follow the 70 percent rule. Only take on projects when the after repair value is less than 70 percent of the final selling price. Once you make the sale, use an experienced real estate lawyer to write up the contract.

Manage the Rehab Process

Keep yourself in the loop and work closely with a general contractor. This will keep you on track with the renovations and within budget. Obtain estimates from contractors and keep track of their progress on your project. Make a written timeline and make sure everything goes according to plan in a timely manner. This will help avoid carrying costs.

Hard Money Loans in California

Homeownership in California falls about 10 percent lower than the national average at just 54 percent. With the high cost of homes and the challenges financing through traditional mortgages can bring, many homeowners, especially in southern California, turn to less traditional types of financing to get the home they want. Although hard money loans are generally offered to investors who flip homes or purchase them to rent out to others, they can also be used to finance a mortgage to buy a home you intend to live in. This allows individuals to use their home as collateral and to get approved for the loan much faster than going through traditional banks. It also means less paperwork that needs to be filled out and understood.

Foreclosure Laws

For California homeowners who are facing foreclosure, the process is usually handled outside of court through a non-judicial process. Typically only cases that involve state-owned property or property in probate court require the courts to get involved.

Property Redemption

While some states give homeowners the opportunity to buy their homes back, even after the completion of a foreclosure sale, this isn’t the case in California. Once a home is sold on the auction block, homeowners are unable to buy it back.

Deficiency Judgments

Another issue homeowners may experience in some states is the ability for the bank to go after the homeowner for any deficiencies once the foreclosure process is completed. This allows the bank to recover any money owed beyond what the sale of the home brings in. Fortunately, this isn’t allowed in California.

Deed in Lieu of Foreclosure

When it becomes clear a home will go into foreclosure due to a homeowner’s inability to pay, they can often go through a process known as deed in lieu of foreclosure. This means they voluntarily turn the property over to the bank and move out of their own accord without waiting for the foreclosure process. This avoids going to court and sometimes even allows the homeowner to leave the property with a little money for the effort because if saves the bank the cost of foreclosing. This money can help individuals with the costs of moving, including putting a down payment on an apartment or other rental property.

Grace Period Notice

California is one of just a few states that has a grace period built into their foreclosure process. Lenders are required by law to personally contact, or at least attempt to contact, the homeowner to discuss their options to avoid the foreclosure process. This must be done 30 days prior to the foreclosure notice period. The notice of default is sent to the homeowner with a three-month notice filed with the county recorder’s office within 10 days. At the end of this three-month period, the lender then files a notice of sale and sends it to the homeowner at least 20 days prior to the date of sale. This means the sale date cannot take place sooner than three months and 20 days after the foreclosure process begins. The notice of sale must also be publicly posted, often in the local newspaper, as well as on the property in question.

Service Member Mortgage Protection

Certain individuals who are members of the military are often protected under Servicemembers Civil Relief Act, which is a federal mandate. In addition to the military, California extends these benefits to National Guard members and those who are ordered into active state service by the governor. Reservists are also covered under this act, giving them peace of mind they won’t lose their homes while serving their country.

High-Risk Mortgage Protection

Abusive loan practices can create problems for individuals. This is why the state government has put protections in place to combat these practices. Judges have the power to order lenders to reform their practices to ensure equity. These protections don’t apply to mortgages through the secondary market, such as Freddie Mac, or those who don’t know the loan origination violations.

Other Statutes

There are other laws in California in reference to foreclosures that are important to learn about. For instance, the law caps interest rates for mortgages at no more than 12 percent for sales and seven percent for judgments. However, there are exceptions to these rules in certain situations. Many banks and similar institutions are exempt from these rules. Real estate brokers can also help individuals obtain a loan that falls outside these limitations.

Another way California protects homeowners is with their homesteading regulations This law protects the equity the homeowner already has and must be requested by the individual living on the property or a relative of that person. This automatic homestead exemption can stop a foreclosure if the lender is unable to prove the sale can produce the funds to repay any liens and the exemption amount. If the sale is sufficient to cover it, the sale proceeds and the homeowner receives the exemption amount to be used to establish a new residence.

Hard Money Lenders: Understanding Down Payments and Benefits For House Flipping Professionals

Entrepreneurs who ply their trade within the real estate field will often consider utilizing hard money loans to accomplish their financial goals. A hard money loan is essentially a loan that is secured to a piece of property. Often referred to as short-term bridge loans, hard money loans are commonly used by individuals to complete real estate transactions without utilizing a bank.

Individuals looking to enter the world of house flipping will likely find themselves confused by a hard money loan. Why does a hard money loan require a down payment? Does this mean that hard money loans should be avoided? As it turns out, there is quite a bit to learn about hard money loans so let’s dig into our less.

Hard Money Lenders: Down Payments Are Required – But Why?

When it comes time to take out a mortgage for your home, you will often be asked by the bank to bring in a down payment to close the deal. The lending industry looks at your downpayment as a form of accountability. You are putting your skin in the game, so to speak. If your project fails, then you lose money along with your lender. Easy enough to understand, right?

Now, what happens when a hard money lender finances your entire house flipping project?

When a lender agrees to finance 100% of a property purchase as well as the corresponding improvements, that puts you into an interesting-if-stable situation. Let’s say that you default on your hard money loan after signing a 100% financing deal with a lender. At this point, you would lose your property and the lender could do with it as they please, up to and including selling the financed property.

With this appropriately understood, we must ask ourselves – Should we use a hard money loan to flip a home?

Using a Loan to Flip a House – Cost/Risk Analysis

At this point in time, you might be wondering why you should get a hard money loan when a traditional loan sounds more common. The truth is that hard money lenders provide a dose of freedom to the house flipping industry that traditional lenders cannot match. In addition to this financial flexibility, working with a hard money lender can lead to a few of the following benefits during your house flipping ventures.

  • Work Around Credit Problems – Credit problems and house flipping don’t have to negate one another. Most people don’t have absolutely stellar credit, but that shouldn’t stop you from making money in real estate. Hard money lenders work with individuals rather than their credit scores.
  • Target Better House Flipping Projects – Traditional lenders have quality standards when it comes to ensuring a loan against a home. For house flippers, the goal is to get a home in bad shape in order to repair it to sell for more money. Hard money lenders are willing to work with you on your fixer-upper.
  • Get The Job Done NOW – House flipping and timely sales go hand-in-hand. Hard money lenders are amazing when you need financing, fast. From approval to funding with a hard money lender can take only 14 days. Individuals in booming markets like Dallas and Chicago benefit directly from such quick turnarounds.

Whether you are ready for a hard money loan or not, building a foundation of knowledge is integral to long-term success in the house-flipping world. With house-flipping rates at almost a decade-long high in 2019, the industry is wide open for savvy investors.

What You Need to Know About Fix & Flip Hard Money Loans

Real estate investing is a fast-growing trend that allows individuals to make a lucrative investment in their future. While many people think about buying property to rent out to generate a passive income, there are other options. If you love doing fix-it jobs around the house, buying property that needs work to fix it up and resell it for a higher price can be a more attractive real estate investment option. However, it can be a challenge to get the funding you need for this type of project, which is where hard money lending comes into play. The following will tell you everything you need to know about fix and flip hard money loans so you can get started.

The Basics

Hard money lenders often loan out their money at higher interest rates with larger down payments required in exchange for some other benefits that can make traditional lending more difficult. For instance, your credit will have much less bearing on these arrangements than seeking a traditional mortgage loan through a bank. In addition, the lender typically looks more at the overall value of the project, rather than whether your credit is good enough for a loan. In these situations, the property you buy is used as collateral. These loans are designed to last for a shorter period, just long enough for you to make the needed renovations and sell the home, which means the higher interest rate doesn’t have as big of an impact on how much you spend.

Hard Money Loan Requirements

The requirements for fix and flip hard money loans are quite different from your traditional mortgage loans. Rates for these loans typically run between seven and 12 percent, which is often higher than traditional mortgages. Your lender will look at the loan-to-value ratio to determine how much to offer, as well as the terms of the loan. Fee or point between one and 10 percent may also be charged.

How to Qualify

Once you make the decision to use fix and flip hard money loans, you next need to learn how to qualify so you can increase your chances of finding a lender who will work with you. In many cases, hard money lenders operate with a simple online form, especially since they don’t usually factor your credit into the equation. All you need to do is complete the loan application and pay the application fee. You may also need to provide two to three months of bank statements, a signed offer for the property you intend to purchase, the address of the property, any contractor agreements you have and your plans for renovation. This will help the investor decide if they want to fund your project.

Why Use These Loans

Most individuals who purchase and flip properties can benefit from using hard money loans versus a more traditional mortgage. Not only are they easier to qualify for and include shorter terms, but they also offer faster approval times so you won’t lose out on buying a great value you can turn around for significant profit. Including a business plan with a clearly defined project end date can help increase your chances you will be approved for this type of loan.

Using Hard Money Loans to Fix and Flip Homes

There are many ways you can invest in the real estate market. In recent years, one of the most popular options is to purchase homes to renovate and then flip them for a profit. Not only does this provide investors with a great way to earn extra money, but it also gives individuals better housing options. However, funding these ventures can be difficult, especially if you rely on traditional lending methods. The good news is there are other options out there. Hard money lending is a viable option that can make this type of real estate investing an option for more individuals.

A Faster Turnaround

The best way to make the highest amount of money on house flipping is to turn around the property as quickly as possible. While you need time to complete the necessary improvements and renovations on the property you purchase, the faster you are able to do them and sell the home, the more money you will be able to make. This also applies to how quickly you will be able to secure the funds you need to pay for new investment properties and the renovations required. If you choose traditional loans to achieve this goal, you will find you need to wait long periods of time for the approval process and may even be turned down more often than you would like. This is because traditional loans typically require more stringent financial documentation in order to be approved. Hard money lending works differently.

Hard money lending is obtained from individuals, rather than financial institutions. This means they determine who they will lend money to and how much. It is their way of investing in real estate without having to do the work themselves. IN order to qualify for a hard money loan, most individuals will simply require a business plan and projection, as well as evidence the value of the property matches with the loan request.

Who Offers Hard Money Loans?

The answer to this question is relatively diverse. There is no right or wrong answer. However, most of the individuals you will find who offer these types of loans are well-off individuals who are looking to put their money to work or small real estate investment firms. As long as an individual or an organization has the money to offer, they can become hard money lenders. The key is doing your research and finding lenders who are reputable and trustworthy so you know you can count on them to provide the funding you need to complete a flip and benefit from the investment.

The Ideal Short-Term Option

If you’ve ever invested in real estate via the traditional means, you recognize most of the loans you will encounter are based on long-term results. Some may even have penalties for paying them off too quickly. This is why many individuals who wish to flip properties are turning to hard money lending as an alternative. Hard money loans typically have a faster turnaround. In fact, you will be hard-pressed to find loans that last for longer than a year. This is beneficial to house flippers because the goal is to renovate the property and resell it in a short period to get the highest return on the investment.

If you are interested in flipping properties and are in search of a lender for your hard money lending needs, contact us. We offer the options you need to make the most of your real estate investments and turn a profit on flipping properties.

How Fix and Flip Loans Can Help You Invest in Real Estate

If you’re interested in flipping houses, you’ve probably seen many of the fix and flip reality TV shows. They make it look easy, don’t they? With some funding and the right property, flipping houses seems like a simple way to make a profit. However, the reality is that if you’re not careful when managing the property, you can lose a lot of money in the process. Ease this with a fix and flip loan.

Read on to learn more about this alternative funding for your real estate project.

The Fix and Flip Loan

Conventional mortgages from banks and credit unions are long-term loans with low interest. On the other hand, a fix and flip loan is a short-term loan at a higher interest rate. These loans are given out by private investors or lending companies to provide real estate investors with hard money for fix and flip projects.

The differences between a traditional loan and a fix and flip loan are as follows:

  • Fix and flip loans are for six to 12 months. A conventional loan is for 15 to 30 years.
  • Fix and flip loans are funded quickly, while conventional loans take longer to close.
  • With a fix and flip loan, no credit check is required, as compared to a conventional loan.
  • The interest rate for a fix and flip loan is from 12% to 21%, while points are between 3% and 6% of the loan amount.
  • There is little or no required documentation for a fix and flip hard money loan.
  • A hard money loan is anywhere from 60% and 75% of the property’s value.
  • A down payment for a hard money loan is up to 40%, while a conventional loan may not require a down payment.

Advantages of fix and flip loans

Speed is a major factor when it comes to securing a property to fix and flip. There will probably be other bidders, which makes the process even more urgent. With a fix and flip loan, you can have your money within in a week, while a bank loan will take about 30 days. In this time, the property will most likely sell to a buyer who comes up with cash the quickest. Not only are hard money loans quick, they’re easy to get. In many cases, the company or private investor won’t ask for proof of income, your credit score, or your debt-to-income ratio. Also, the condition of the property is not an issue. What lenders look at is the strength of the loan and the trustworthiness of the borrower.

Downsides to fix and flip loans

A fix and flip loan does come with some drawbacks. Interest rates are higher and the shorter loan term can make it difficult for new flippers to make a profit in time to pay off the loan. If the loan isn’t paid back, the borrower loses the property. If you’re an inexperienced flipper, it is recommended to partner with someone who is experienced. This way, you will reach your goal on time.

Should You Use a line of credit

If you’d like to use credit to secure your funding, rather than using the property, you can get a personal loan up to $100,000. However, there are credit and income requirements for this type of loan. If you have good credit and a good income, you can take out a personal loan, save money on interest, and get the funds quickly. Another advantage of using a line of credit is that it will always be there. This means you won’t have to apply for a loan every time you want to flip a property.

Is a Fix and Flip Loan Right for You?

To find out if this is the right type of loan for you, you’ll need to answer these four questions:

1. How low below market can you pay for the property? The wider the gap in the what you pay for the property and what you sell it for brings a bigger profit. Keep this mind.

2. How much will you pay in fees and interest on the loan? Until you can sell your property, you are responsible for making loan payments. While you don’t know when you’ll sell the property, try to get an idea of how much you’ll be paying in the meantime.

3. How much will it cost to repair the property? It’s a good idea to get quotes before purchasing a fix and flip home. Keep in mind that home repairs often taken longer than expected and usually end up costing more.

4. How much can you sell the property for? To find this out, do some research. See what similar homes in the area have recently sold for. You can also consult a real estate agent.

Learn More about Fix and Flip Loans

To learn more about getting a fix and flip loan, contact IMC Money. We will answer all of your questions and help you get a hard money loan for your fix and flip property.

Real Estate Trends in 2019

The real estate market has certainly seen its ups and downs over the past decade or so. Every year, new trends arise to the surface that can have a dramatic impact on how residents buy and sell their properties. As we approach the middle of the year, it’s important to take a good look at what the newest 2019 real estate trends are and how they can have an impact, whether you’re looking to sell your home in the near future or you’re on the hunt to find your ideal home, whether it’s your first or you’re looking for an upgrade or to downsize.

Home Prices on the Rise

After the housing market crashed and brought many homeowners underwater on their mortgages, many wondered how long it was going to take for the real estate market to recover. While some areas of the country aren’t quite there yet, the good news is home prices are on the rise. This is better news for those who are looking to sell their homes and not as great for buyers. However, it’s a clear sign the housing market is in good shape overall. With the largest jump last year at about 10 percent on average, home prices are still on the rise this year, although this has slowed down somewhat. Unfortunately, with the increase in prices, those who are looking to sell their homes are also seeing a decrease in the number of offers they receive. Rest assured, even if you don’t end up getting as many offers as you did before, there is still likely a buyer out there willing to pay the right price for your home. As long as sellers pay attention to the other homes on the market around them and price accordingly, as well as make their houses stand out, they should be able to find a buyer willing to pay the right price to still make a good profit. Buyers should also take their time when making a purchase and make sure they have enough money down (at least 10 percent) and don’t step outside their set budget for home buying.

Interest Rates Are Up

Although still nowhere near the peak it once was, mortgage interest rates are on the rise, which means buyers need to be careful about getting good rates on their loans. At the present, mortgage interest rates are predicted to rise to about five percent for 30-year mortgages and 4.4 percent for 15-year mortgages. This is the highest interest rates have been in seven years. While this may seem like bad news, it actually indicates the economy is doing well. The federal reserve raised their interest rates and the banking industry is only now following suit. Because of this, it’s best for buyers to opt for a 15-year mortgage if possible to help keep interest payments low. For sellers, high interest rates may seem as though they are irrelevant, but they can have an impact on how quickly you sell your home. This is because some buyers may be hesitant to buy with a higher interest rate or may hold out for a cheaper home in order to keep their payments within budget. The good news is your home is still likely to sell; it may take longer than it may have in years past, but you are still likely to find a buyer willing to pay what you ask or close to it.

Millennials Make Up a Large Portion of Buyers

Millennials have reached a time in their lives when they are most likely working stable jobs and at least thinking about starting their families, which means they’re among the biggest group of individuals to be looking for homes on the market to buy. In fact, they currently make up about 45 percent of the overall market. This is excellent news for the baby boomers and other older generations that are starting to think about retirement and downsizing their homes. In general, millennials are looking for homes that are affordable without sacrificing on the quality of the construction, have low maintenance needs and are located in areas with easily accessible larger cities for their convenience. With easy online shopping, it’s easier than ever to reach this generation of home buyers.

Hard Money Lending Basics

Chad Chiniquy Real Estate Investment

Chad Chiniquy Real Estate Investment

So, what exactly is a hard money lender?

First, it’s important to understand what a hard money loan is: It’s simply a short-term loan secured by real estate.

Back to the question of what is a hard money lender: “It’s synonymous with a private investor,” says Don Hensel, president of North Coast Financial, which specializes in hard money loans. “A lender could be an individual, a group of investors, or a licensed mortgage broker who uses his own funds. This differs from a bank that uses money from its depositors.”

Benefits of a hard money loan

Why would any home buyer opt for a hard money loan instead of getting their mortgage the traditional way from a bank? Because hard money loans are generally less of a hassle. The flip side? You can borrow the money for only a short period of time—and at a much higher interest rate.

These short-term, high-interest-rate loans are especially popular for the following people:

Flippers: If a house in disrepair comes on the market and it looks like it could be fixed and flipped in several months, most people prefer not to go through the hassle of taking out a 15-year loan on the property.

Builders: Many contractors use hard money loans to buy a lot, build on it, then sell the new structure and pay off the loan quickly.

Investors: On occasion, a real estate investor will come across a killer deal on a property that needs to be snapped up pronto. If the investor doesn’t have the money on hand, a loan can be fast-tracked by a hard loan lender, who is, in effect, a real estate investor as well.

People with credit issues: People who have cash on hand for a down payment but have been rejected by a bank for a conventional loan—or have had a foreclosure, default, or other red flag on their recent credit report, but have some cash on hand, can use hard money loans to buy a property that would be unavailable to them otherwise.

So let’s say you lost your job several years ago and your house went into foreclosure. Since then, you’ve found a great position and are happily employed. You’ve also found a killer deal on the perfect house, but there’s a problem: Few banks will grant you a mortgage with a foreclosure on your record.

Chances are you can find a hard money lender that will give you the opportunity to buy that home before it slips away. You can then refinance with a traditional mortgage once time has passed and your credit score improves.

“The higher interest rates may seem scary at first, but the benefits of getting a loan funded quickly and being able to obtain financing when all the banks have said ‘No’ will far outweigh the extra cost,” says Hensel. The closest thing banks have to a hard money loan is a bridge loan, but qualification for one may be more difficult.

Hard money loan terms are usually much shorter; from six months to one year is most common, but sometimes they can go up to five years. And, as you would expect, interest rates are considerably higher, usually ranging from 12% to 21%. Most hard money lenders also charge points upfront, where 1 point equals 1% of the loan. From three to six points is typical for a hard money loan.

So if you borrow $100,000 from a hard money lender, you would pay $1,000 per point charged, which would likely be an extra $3,000 to $6,000 upfront, in addition to the interest you’ll be paying until the end of the loan.

Down payment requirements for hard money loans are also different. You can expect to receive about 60% to 75% of the property value you intend to purchase. If you’re looking at a $200,000 property, for example, the most you’ll probably be allowed to borrow would be $150,000, meaning you’d have to pay $50,000 upfront.

On the other hand, because you’re not doing all the paperwork and extensive qualifying procedures required by big banks, you can usually get a hard money loan much faster. In many cases, it could take as little as one week. Risks of a hard money loan But you should use caution if you decide to go the hard money route. Make sure you take the time to look into the reputation of the lender, and have an experienced real estate attorney review the paperwork. While there are many legitimate hard money lenders offering loans, there are also predatory ones that try to take advantage of borrowers.