Many people wrongfully assume that they have to rely on risky, hard-money loans to get into the real estate game. Thankfully, there are much better, and often more accessible loan types that real estate investors can use in 2023. Here are just eight of the most useful hard money loan alternatives for real estate investors to consider:
1. Personal Loans
When it comes down to it, personal loans are often one of the best possible options for anyone investing in a high-cost product such as real estate. Unfortunately, getting a personal loan is often much easier said than done. If you do have access to a quality personal loan, however, you should pull the trigger. The more flexible nature of these loans, and the business relationships they can lead to, are absolutely stellar, after all. This, and other alternatives to hard money loans, can be a godsend for some investors.
2. Cash-Out Refinance
If you already have a loan on a solid property, you can use a cash-out refinance loan to kickstart additional real estate investment opportunities. These loans give you cash that covers more than you currently owe on a property, allowing you to look for even more quality investments that can get your ROI rate where you want it to be. Compared to hard money loans, cash-out refinancing loans are more flexible and trustworthy.
3. DSCR Loans
DSCR loans, also known as Debt Service Coverage Ratio loans, allow you to gain a loan for a property based on its pre-existing potential to generate income. For those who are just now beginning to invest in real estate, DSCR loans can be an absolute godsend. Not only are they more affordable, but they are a lifeline for those who simply cannot gain the amount of funding needed for purchasing an investment property outright on a limited income.
4. Credit Cards
Hard money loans are often seen as incredibly old school in today’s world. For real estate investors, having lines of credit to work with is much more attractive. Thankfully, there are more credit card styles and opportunities than ever before in 2023. If you can find the right setup and line of credit, you’ll have a much more useful set of resources to secure that quality real estate investment opportunity that you’ve had your eyes on. Hard money loans can put you in a complex, and often frustrating financial situation and credit cards allow you the flexibility to adjust your payments on a longer timeline as well.
If you’re on the internet at all in 2023, you’ve almost certainly seen crowdfunding campaigns. While many people assume that for-profit ordeals, such as real estate investing, would not work naturally with the crowdfunding ethos, the truth is actually much more complicated. If you’ve been looking for investment partners for your real estate endeavors, you can now find them via crowdfunding tools and apps. This new resource has greatly expanded the ability of lower-income individuals to begin investing in real estate especially.
6. FHA Financing
Thanks to the effortless work of professionals in the Federal Housing Administration, there are a lot more resources for real estate investors (both those who are just starting out and experienced investors), than people tend to realize. These loans provide low down payment options, smaller interest rates, and many other useful advantages. However, you’ll need to qualify for an FHA financing loan through a complex qualification process. If you have the time to look into the program, you absolutely should, as it’s a fantastic alternative to the risky nature of a hard money loan.
7. VA Financing
Thankfully, those who’ve served the US have many more options for finding ways to kickstart careers in real estate. Because the VA has its own funding branch, it can help veterans find valuable properties to invest in with ease. The more passive, low-impact nature of working in real estate investment makes it a perfect fit for veterans who want to lead a quiet, easy life post-military service, after all. Through VA financing, making cash in the real estate game can become much more accessible.
Home equity lines of credit have always been a fantastic hard money loan alternative for those with access. If you already own a property, you can get financing by using your hard maintenance and upkeep work to your advantage. While the process of getting a HELOC can be frustrating at first, it’s been made much simpler thanks to modern advancements in both the real estate and loan industries. If you can access a HELOC that will make your real estate investments more secure, you should absolutely do so in 2023.
9. Conventional Mortgages
For real estate investors with strong credit and financials, conventional mortgages may be a more affordable financing option than hard money loans. While the approval process for a conventional mortgage may be longer than that of a hard money loan, the interest rates and repayment terms are typically more favorable.
10. Peer-to-Peer Lending
Peer-to-peer lending platforms connect borrowers with individual lenders who are willing to finance their projects. These platforms may offer more flexible terms and lower interest rates than hard money loans.
11. Bridge Loans
Bridge loans are short-term loans that can be used to bridge the gap between the purchase of a new property and the sale of an existing property. While bridge loans may have higher interest rates than hard money loans, they can be a useful financing option in certain situations. Bridge loans are generally easier to obtain than traditional financing options, as they are often secured by the property being purchased or the property being sold. Because of this, bridge loans typically have shorter repayment terms and higher interest rates than traditional mortgages.
In conclusion, while hard money loans can be a useful tool for real estate advisors, there are a variety of alternative financing options available. By exploring these options, real estate advisors can find the financing solution that best meets their needs and financial goals. Overall, real estate advisors have many financing options available to them beyond hard money loans. By considering the unique needs of their project and their own financial goals, they can choose the financing solution that best meets their needs.