Hard money loans can be one of the best ways to invest in real estate. They are fast, flexible, and easier to acquire than traditional loans. Hard money loans can be earned in just a few days and paid off within 6 to 24 months.
However, given the speed of the loan, it is essential that you do not fall behind in the planning process. Before obtaining a hard money loan, it is important to have a well-thought-out exit plan ready and strategized. Your lender will not only want to see what you have planned, but it is also an essential component of paying back the loan and moving on to your next investment.
There are many exit strategies out there, so you can choose one that fits your investment needs.
What Is an Exit Strategy for a Hard Money Loan?
An exit strategy is a precise plan for how you are going to pay back your hard money loan. With the fast nature of a hard money loan, you don’t want to be scrambling at the end of it, figuring out how you are going to repay your lender. Having a plan in place before obtaining the loan can ensure you stay on the right track. Additionally, most lenders require an exit strategy before they approve you for a hard money loan.
Top Exit Plan Strategies:
There are many exit plan strategies out there. Depending on your real estate needs, financials, and future goals, you might choose to do one type of exit plan over another. So, take the time to assess where you are and where you want to be.
Sell the Property
The most common strategy real estate investors use to repay their hard money loans is selling the property. Many hard money loans are given to investors who want to fix and flip properties, so they hope to sell the property after they renovate it, allowing them to pay off the loan and move on to their next investment.
Refinance
If the investor is not flipping the property but renting it, they might look to refinance to pay off the hard money loan. Investors can refinance with a traditional mortgage or alternative finance option, allowing for longer-term repayment of the hard money loan.
Personal Funds or Other Assets
Investors might choose to pay off their hard money loans using personal savings, profits from other investments, or even business capital. This can be a great option for those who do not want to refinance or risk potential delays that could arise from selling the property.
A Traditional Mortgage
For those investors who wish to stay at the property they purchased with a hard money loan, a traditional loan could be a possible way to pay off the loan. If you do not qualify for a traditional loan, there is also the subprime mortgage option. Either of these options can provide you with the funds to pay back the hard money loan.
Why Should You Plan an Exit Strategy?
Having a strong exit plan is key to the loan process. It will ensure lender confidence. When hard money lenders see that you have an exit strategy in place, your chances of being approved are increased. Additionally, an exit strategy can help you avoid default. If you do not repay your hard money loan, you risk losing the property to foreclosure or other financial consequences.
Building an exit plan can also help you better manage your finances. When you know exactly how you wish to repay the loan and leave the property, you can anticipate potential expenses or issues and ensure you are ready to handle what might happen.
An exit strategy is essential when acquiring a hard money loan. If you have further questions or wish to obtain a hard money loan, contact the team at KC Investor Funding.