What is a hard money loan?
Hard money loans are short term loans used to renovate properties. They’re used by real estate investors to purchase properties which may not be finance-able by traditional means.
Pros and Cons of hard money loans
Pros:
- Ability to roll the costs of repairs into the loan. This is especially important since you may be spending more on renovations than on the property itself
- Lenders can fund quickly. As fast as 10 days. In my experience, this is only after you’ve closed a deal with them. DO NOT expect “10 day funding” on your first loan with any lender. Before searching for a property to renovate, I would recommend getting “pre-qualified” with a lender or two.
- You may not need good credit. Each lender is slightly different in the way they underwrite borrowers. Some do it purely based on track record and strength of the deal.
Cons:
- Hard money is more expensive than a normal loan. The interest rates are usually between 7% and 14% annually. Also, there are often origination points charged. These can be as high as 5% of the loan value.
- Short term. The loan will usually mature between 6 and 18 months from origination. Extensions may be offered for a price.
- Your capital requirements may be higher based on your draw schedule. (I explain this more in the video.)
Other notes:
- Scams abound. Never trust a lender you met on Facebook or anyone you haven’t vetted heavily.
- Lenders all prefer to call themselves “Private Money Lenders.” However, it’s a much different type of loan than the one your brother-in-law might give you.
- Each lender is unique in their offering. There are slight differences. I couldn’t capture them all in the graphic below. If you’re seeking a hard money loan, this list is a good place to start your research.
Who are the top hard money lenders in Birmingham?
There is more and more competition to make these loans to investors. Advertising for these loans is at an all time high. But as we all know, anyone can talk the talk. I wanted to find out who is actually funding deals in Birmingham.
One great thing about real estate is that much of the market information is public record. I was able to pull 2019 loan records for many of the top advertising hard money lenders to see who is active here.
The Stats:
These are mostly the heavy advertising national lenders. There are a number of local and regional operators who fund these loans also. I’ve worked with one in particular who I found to rank among these national lenders for how much they do locally. Ray and Gail Burkhalter’s lending stats are represented by “Local Lenders” above. They are also terrific people.
I’m hoping to utilize rental financing from one of these providers in the near future. To date, I’ve only worked with local portfolio lenders for rental financing. Here’s a link to my post on portfolio lenders in Birmingham.
Like I mentioned, there are subtle differences in the business models of every lender. The best way to figure out which one is a fit for you is to go to their websites and research. I have contacts at each of these companies, although the only national provider I’ve closed loans with is groundfloor.us
Links to Hard Money Lenders In Birmingham Alabama
Thanks for reading! Feel free to send me an email with questions or feedback
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