Multi-Family Hard Money Loans
Multi-family residential properties, also known as multi-dwelling units, are a form of housing that features several individual housing units within a single building or several buildings that are located in a single complex. The units in multi-family homes can be side-by-side or on top of one another; examples include apartment buildings and condominiums.
For real estate investors, multi-family properties can be a sound investment, as the units can be rented out individually, which means that investors have the potential to earn revenue that far exceeds the total purchase price of the entire building. However, while there is the potential for significant financial gains, a multi-family property does cost more than a single-family property.
In order for real estate investors to secure the funding they need to purchase a multi-family property, they often turn to multi-family hard money loans.
What is a Multi-Family Hard Money Loan?
A multi-family hard money loan is similar to a traditional hard money loan. Hard money loans are considered short-term bridge loans, which are commonly used in real estate investments. These loans are a form of asset-based lending; a lender provides financing to a borrower, and that financing is secured by a real property instead of credit; borrowers don’t need to provide lenders with proof that they will repay the loan, as the property the investor is interested in securing is used as collateral. If the borrower is unable to pay back the company that lent a hard money loan, they can attempt to get their money back by seizing the collateral and then selling it. In other words, the value of the collateral – the property – is more important than the borrower’s credit history.
A hard money loan is a short-term loan; usually, the term is no longer than five years. Additionally, the interest rate on hard money loans is usually higher than the interest rate on a traditional loan. The interest rates are higher than traditional loans because lenders of these types of loans assume a higher risk.
A multi-family loan works similarly to a standard hard money loan. They are asset-based loans that allow a borrower to secure funds based on the value of the multi-family property that he or she is planning on purchasing.
The Benefits of Multi-Family Hard Money Loans
Multi-family hard money loans offer specific benefits that make them an appealing option for real estate investors who are interested in purchasing multi-family properties.
- Multi-family hard money loans provide real estate investors with nearly instant access to funding. Since the value of the property, not the investor’s credit score, is used as collateral, funds can be provided much quicker.
- These loans are flexible and can be adjusted to meet the specific needs of the borrower.
- Easier approval. Lastly, getting approved for a multi-family hard money loan is a lot easier than getting approved for a traditional loan. Again, this is because lenders aren’t interested in credit scores, but rather the value of the property that is being used as collateral.
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