Should you get hard money loans for your real estate investing? In this blog post we’ll answer that question for you by sharing 3 potential disadvantages of using a hard money lender in FLORIDA to help you decide whether hard money loans are right for you.
Real estate investors prefer not to tie up their own capital in a real estate deal but instead they’ll use other money sources to help them do deals. There are many money sources, and hard money lenders are one such source.
There are good hard money lenders out there and hard money loans are a common way to invest. However, every investor needs to decide for themselves if a hard money loan is right for them. To provide you with a balanced view, consider these 3 potential disadvantages of using a hard money lender in FLORIDA.
3 Potential Disadvantages Of Using A Hard Money Lender in FLORIDA
Disadvantage #1. Pay Back With Interest
A hard money loan is just that – a loan. And loans come with interest, which is the lender’s way of making money for the service they provide. There’s nothing wrong with them charging interest for the loan but you need to be aware that the interest exists and you need to factor it into your accounting. Are you prepared to make principal plus interest payments?
Disadvantage #2. Need More Money
Another drawback of hard money loans is their finite nature. You must determine in advance the amount of money required and borrow precisely that sum. However, if you misjudged and require additional funds, you’re faced with a dilemma. You must either reapply for an increased loan amount or seek additional funding elsewhere to cover the shortfall.
Disadvantage #3. Return On Investment
When you borrow money and have to pay it back with interest, this could potentially delay or reduce your return on investment. For example, if you borrow money to fix up a rental property and then rent it out at $500 a month, any hard money loan repayment of $500 a month will prevent you from seeing any return until the loan is paid off. (These are just example numbers and of course you should structure every loan in a way that makes sense for you.)
Summary
Hard money loans serve as one of many investment tools, offering numerous advantages for real estate investors to expand their business by facilitating more deals. It’s worth noting that we have a positive view of hard money loans and believe in their effectiveness. However, it’s essential for every investor to be fully informed upfront. Understanding the potential drawbacks of using a hard money lender in FLORIDA empowers you to determine if they align with your investment strategy.