Financing Home Remodeling with Hard Money Loans

“Flipping” houses or “fix and flip” became very popular a few years back. It was particularly popular as the US housing market recovered from the equities crash in 2007 and 2008. In fact, according to data published in 2016 by RealtyTrac, which tracks and analyzes real estate data, the average return on investment for people who bought and remodeled “fixer upper” homes and flipped them to someone looking to buy a house grew from around 20 percent in 2011 to 35 percent in 2015. Fixing and flipping a house is a major project, not least of which because it costs of lot of money. That’s why many house “flippers” fund their fix and flips with loans such as hard money loans.

Hard Money Loans

One popular financing option in addition to bank loans and real estate crowdfunding sites, is “hard money loans.” Hard money loans are very convenient. They are especially well-suited for people who flip homes, but they do come at a cost.

Hard money loans tend to have higher interest rates than bank loans. Sometimes the rate can be as much as 10 percentage points higher than a conventional loan, and they have a shorter repayment period.

That’s what makes them well-suited for home flippers.

The shorter repayment terms are okay because the flipper wants to get the house on the market as soon as possible, and the ease of securing the loan over applying for a mortgage— which can sometimes take months— keeps flippers from missing out on good opportunities.

Because hard money loans are offered by private lenders, there may also be more flexibility in the negotiation of the loan terms over institutional lenders, and the property itself usually serves as the collateral for the loan.

It is for this reason, that custom home designs should be based on current design trends. This ensures that the home will sell promptly upon completion. Just try to keep in mind some basic principles of home design:

  • Keep the exterior in line with the homes in the surrounding area.
  • Choose a design that complements the exterior aesthetics.
  • Use materials that are going to last.
  • Choose room themes that is evergreen.

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