The Disadvantages of Getting a Hard Money Loan
Yes, even with hard money loans, there are disadvantages to consider. At the end of the day, when you compare the advantages to these disadvantages, you’ll see why more real estate developers and investors use hard money loans to fund their projects:
Higher Interest Rates:
A hard money loan will have a short-term and higher interest rate than a traditional bank loan, with rates starting around 9% and reaching 15% based on the collateral the property offers. Because a hard money lender is willing to take a more significant risk, they ask for bigger repayment. While San Pedro is booming, like real estate anywhere, it has its risks, but RTI Bridge Loans offer lower than our competitors for the same loan amount.
Higher Down Payment with Equity Requirement
Your blemished, not-so-perfect credit history doesn’t concern an experienced hard money lender like RTI Bridge Loans. Bankruptcy and foreclosures are things we look beyond because we’re interested in the San Pedro collateral and the equity you have to offer. With a higher down payment, starting around 25% and up, we see that you’re going to see this project through to repay the loan as a higher possibility.
The Last Resort with A Short-Term
Hard money loans are typically never longer than one year, a much shorter term than a traditional bank loan, but easier to get approved and funded. In the longer-term, a hard money lender like RTI Bridge sees a more significant risk. Many San Pedro investors consider hard money loans a last resort because of the short terms offered.
Types of Hard Money Loans
Hard money loans come in various types to fit various projects and borrowers’ funding needs. One call to RTI Bridge Loans at (310) 532-5008, we’ll talk about your San Pedro, California project, the potential it holds, and the best loan type we have to offer.
A Hard Money Loan:
A hard money loan is when you borrow money to buy a property, using that property for your collateral. All loans are like that, but with hard money loans, the terms are much shorter, and the interest rates are much higher than a traditional bank loan. An average term is one year where the monthly payments interest only. When the collateral property sells, the borrower pays the loan off with the proceeds. If the borrower cannot pay the balance at the end of the term, the lender takes possession, sells the property, and recoups their money.
A Bridge Loan:
A bridge loan is a hard money loan that gets you into a new property before your current property sells. The description is defined as it reads, ‘bridging’ the gap between your current property to your desired new property, and when the current property does sell, the hard money loan comes payable in full.
A Fix & Flip Loan:
A fix and flip loan are among the most popular hard money loans today in the San Pedro area because of the potential growth on the horizon. A fix and flip loan allows you to buy that property that you see great things for, get it fixed up, then sell it at a profit. With that profit, you pay your hard money loan back in full.
Working With San Pedro Hard Money Lenders
With more than 30 years in San Pedro and all of California, RTI Bridge Loans has the experience in hard money loans and real estate that you can depend on and trust. We’ve seen the real estate market at its highest boom, and we’ve seen it hit rock bottom. We will guide you in the right direction with your next San Pedro project to grow with the population boom coming in the next ten years.
What You Need To Know About San Pedro
San Pedro may be close to Los Angeles, but the small town feels more people are looking for, which explains the growth potential in the next decade. With LA so close, the big city life is nearby, or stay in San Pedro and enjoy the dining, museums, shopping, theater, and more. With waterfront promenades, recreation abounds with all the sports you can desire and beautiful beaches with endless ocean views.
Home prices in San Pedro are in the mid to high $600’s with an average of $685,000. With a square foot average of around $450, homes sell in 60 days or less at the asking price or above. Updated baths and kitchens, spas, and swimming pools are what buyers are looking for, along with good schools.