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 Arizona 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. Instead they’ll use alternative money sources to aid them in completing 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 Arizona:
3 Potential Disadvantages Of Using A Hard Money Lender in Arizona
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. Be aware of what the interest is and make sure you factor it into your accounting. Are you prepared to make principal plus interest payments?
Disadvantage #2. Need More Money
Another disadvantage of hard money loans is that it’s not without limits. You need to figure out ahead of time how much money you need and then you need to borrow that amount of money. If you underestimate how much money that you need, you’ll either have to apply for more or look elsewhere.
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.)
Hard money loans are one of many investment tools. They have many advantages to help real estate investors run and grow their business by doing more deals. It’s important for every investors to know all the facts up-front, and this information about 3 potential disadvantages of using a hard money lender in Arizona will help you figure out if they’re right for you.