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Do Hard Money Lenders Require Appraisals?


Hard money lending has gained traction in recent years as a real estate financing option because of its fast approval and controlled capital costs. While you do need to have confidence in your income stream to commit to a collateral-based short-term loan, the use of hard money for working capital allows for large sums to be made available on a short-term basis that is well-suited to turning properties and reselling them at market cap.

The key is finding private money lenders for real estate that have the perfect combination of controlled expenses, fast approvals, and great customer service. When you build a relationship with private money lenders like that, it's a lot easier to close your deals and make your moves.

Establishing the Value of Collateral Assets

Hard money loans for real estate usually don't require a full appraisal by a certified appraising company the way mortgages do, but that is an option in most cases if it's the valuation you are most comfortable with. It can take longer to get approval when you wait for traditional appraisal services. At the same time, though, the lender does need to have some way to substantiate the value of the property, so if it isn't appraised, then what?

The answer is usually the enlistment of a broker whose job is to assess and estimate values based on a number of factors like location, building age, purpose, and declared income. These formulae can be incredibly specialized to the lender's purpose, so it helps to know if you're getting a valuation based on appraisal, average value for a building that size and age in your neighborhood, or stated income. It's also helpful to know if you have the option t do a cash-out refinancing on one of your stabilized investments instead of attaching the debt to the new purchase.

Finding the Right Hard Money Lender in Your Area

It's a good idea to work with lenders who understand the market you're in, and that means people who are local. Many California firms operate in multiple areas, often without maintaining offices in each one, and they are still well-positioned to provide assistance in every market they cover, because they work with enough businesses and investors like you to understand that market. Often, finding the right lender is as simple as searching for hard money lenders near me and then reviewing the deals that major firms in your area are offering until you find the one that suits your current needs.

Remember, not every deal requires the same financing. If you're looking to buy with a long-term plan to make rental income, short-term financing is typically a placeholder until you refinance into less costly capital. Under those circumstances, it's worth asking yourself if you can go directly to the long-term deal. Of course, if you're only holding the property for a short period of time, then this financing is just about perfect for a fix and flip, especially if you're shopping deals that your lender values above your purchase cost. In those cases, you can sometimes borrow enough to close and cover a portion of your improvement costs.

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