Hard Money Loans And Overall Business Strategy
A hard money loan can be a powerful and important tool in the commercial real estate market. However, without a carefully planned exit strategy, the lucrative profits you projected could net out to zero or even put you in the hole. The following are three exit strategies for hard money loans that can help keep the profits flowing. All you need is some meticulous planning and some wise decision making and you’ll be on your way to some awesome profit earning opportunities!
THE FIRST STRATEGY: Use proceeds from selling the property
This is a common plan for property rehabbers or flippers. Investors choose a property with high potential and are able to acquire quick funding through a hard money loan. They then increase the property’s value through repairs and improvement work and, once that’s complete, sell the property for a significantly larger amount, enabling the investor to pay off the loan and still make a good chunk profit.
THE SECOND STRATEGY: Use the hard money loan as a bridge loan
This strategy is for properties which are not intended for fast sale, such as rental or commercial properties. Many long-term loans take three-six months for approval, so an investor may choose to get a hard money loan so that they can buy a property quickly and then take the time to find and secure the best long-term loan for their needs. In this scenario, the hard money loan acts as a cushion while they wait for approval on a more long-term loan
THE THIRD STRATEGY: Use cash from a different source to pay off the loan
In this strategy, an investor may choose to use money from the sale of a different property to pay off the loan. This tends to be a less common strategy, as it may require a redirection of funds from the investor’s original plan, this can give an investor the time they need to make a profit on the property, especially if they just need a little more time to close a deal.
Exit strategies are important for every kind of loan, hard money loans included. By determining the right exit strategy for your business needs and then carefully executing said strategy, you can make awesome profits on real estate properties with the help of hard money loans. Contact Not So Hard MoneyTM now to learn how you can get your hard money loan started today!
Annie is a student at Brigham Young University, an entrepreneur, and an avid ice cream eater. She has happily been a team member at American Life Financial for two years now and loves learning about the ins and outs of real estate and lending, as well as the economics that affects the real estate market today.