One of the most interesting things about our species is our love of money. There is never such a thing as too much money as we can always think about something to do with our capital — for many people how much money they have is directly correlated to their success relative to everyone else around them. Cynical or not, the need for many has driven many towards the seemingly lucrative prospect of residential real estate investment thanks in part to the bursting of the house market’s bubble back in 2007. By scooping up residential properties for cheap prices and renovating the properties, these investors were able to turn a profit to continue the practice; over time they have become professional house flippers who have mastered all elements of real estate investment.
What Lead to Housing Demand
The bursting of the bubble lead to some questionable economic activities on Wall Street and a general devaluation of properties. As our economy strengthens itself again our country is seeing a general rise in demand for affordable housing. Reports from 2011 suggest that population growth in urban areas began to outpace the suburbs in the United States for the first time in 100 years. This correlates to a direct rise in the need for renovated and newly built residential properties across the country — this demand is fueling the drive to flip houses, yet there is a formidable opponent that seeks to stand in the way at every turn: banks.
Why the Bank Always Wins
Banks have been called into the spot-light before, most recently for their notorious offer of high-risk loans to individuals that they knowingly could not afford to make payments — this is likely responsible for many of the 327,069 home repossessions from 2014. Because 32% of all people looking to buy new homes are first time home buyers, it is no surprise that 59% of homeowners all wish that they understood the terms and details of their purposefully obscure mortgage better. Since most residential loans that a bank will offer someone are 15 or 30 year loans, they are unsuitable for house flippers that want to make a quick return on their investment; they must get their capital from elsewhere. Likewise, individuals cannot get the capital needed to start a business from a bank as a business loan can only be taken out after the business itself has been in operation for 2 years, has a minimum annual revenue of $250,000, good personal and business credit, and have a positive cash flow.
The Benefit of Secured Short Term Loans
Rather than let the bank control their financial future, many would-be business owners and real estate investors instead look for secured short term loans. Hard money loans for real estate investors have lower loan to value ratios and higher interest rates with most interest rates starting at 15% or higher. Despite this, a hard money loan is the ideal secured short term loan instead lasting from as little as one to five years; for this reason they are perfect for house flippers looking for quick renovation financing to sell the property and pay back the loan to net a profit. Since most hard money loans are secured with 30% to 50% of the property’s equity, the investor is particularly well protected in the case of poor investments. Moreover, secured short term loans are well known for their quick turnaround times with many being processed within 7 to 14 days; this means that they are perfect for those critical deals where an investor needs the capital as soon as possible. In addition to these secured short term loans, another outlet for the real estate investor to consider is the commercial real estate market. By partnering with a commercial real estate investment firm, individuals can aster the commercial real estate investing basics and pool their money together with trusted investments to each share in the returns. For those with extra money laying around, why not invest in the growth and development of our nation’s homes, businesses, and infrastructures?