Have you been thinking about other ways to invest your time and money into something that will help you grow your financial wealth?
Making sound financial investments certainly helps you build wealth for the future and reach your life goals, and one of the most tried and true wealth-building tools is real estate investing. There are plenty of ways to invest in real estate to build wealth for the future. Many savvy investors achieve their real estate investing goals by leveraging the advantages of hard money loans.
If you’ve never considered what a hard money loan could do for you, let’s take a look at what they are, how they work, and whether they could be a good option for your next investment opportunity.
What Are Hard Money Loans?#
In short, a hard money loan is a type of loan that is funded based primarily on the collateral, rather than the borrower, qualifications.
These types of loans are commonly known for their short duration, usually between six and eighteen months, although they can be as long as three to five years. The most common use of hard money loans today involves real estate investments such as residential fix and flip projects.
Hard money lenders are generally individuals or private companies, as opposed to traditional banks.
Unlike a traditional thirty-year mortgage financing a home that the borrower plans to live in, a hard money loan provides financing when speed and a quick turnaround are essential. This is often the case on real estate investment opportunities when a borrower has a plan to quickly improve the property to either build equity or turn a profit.
Hard money loans work great for investors looking to flip houses or invest in rental properties.
How Do Hard Money Loans Work?#
Hard money loans are easy to apply for and approval is much faster than a traditional loan. Since hard money loans are primarily based on the real estate collateral instead of the applicant’s financial position, there are less hoops to jump through to prove your worthiness as a borrower.
A hard money loan can often be completed in days or a couple of weeks, rather than a long process that could last a month or more with a more conventional loan.
Additionally, a hard money loan has looser criteria for things like credit scores, since the lender is mostly focused on the collateral and has more assurance that the loan can be repaid with the value in the property.
A fix and flip loan offers a great example of a typical hard money loan. When a borrower needs the cash to purchase and fix an undervalued or distressed property, they can get a hard money loan to fund the project. After using the loan to purchase the property, they quickly fix it up and sell it for a profit.
Some hard money lenders offer lending solutions for both the funds needed to purchase and to rehab the property. Other hard money lenders focus their lending just on the purchase of the property.
In any case, by finishing the job in a timely fashion and selling the property to pay off the loan before the end of the loan term, the borrower can profit on the sale after paying back the loan. Banks and other traditional lenders typically do not offer this type of short-term financing used purely for business or investment purposes.
During a fix and flip project, while the borrower is fixing up or in the process of selling the house, the lender usually collects interest only payments. Then when the property sells, the full amount of what was borrowed is repaid to the lender. At this point, the borrower could try doing the same thing over again for another profit.
Another option that many borrowers prefer is to keep the home as a rental for long-term cash flow. In this scenario, the borrower would rehab and rent the property, then pay off the hard money loan with a refinance into a more traditional long-term mortgage. This is commonly known as the BRRRR method (Buy, Rehab, Rent, Refinance, Repeat).
Hard money loans give investors a chance to acquire discounted or distressed properties that do not qualify for traditional financing, then either profit on the short-term investment or add a great piece of cash flowing real estate to their long-term portfolio.
Hard money loans can also be a great fit for investors who already own investment real estate and want to leverage their existing portfolio for other investments, such as flipping houses or acquiring additional rentals. Plus, once you’ve dealt with a lender for one project, it gets even easier to do it again.
You build trust and a reliable reputation that increases your chances of approval and often improves loan terms.
Advantages & Disadvantages#
As with any business or financial endeavor, there isn’t a one-size-fits-all solution. There are both advantages and disadvantages to any type of loan.
In the case of hard money loans, they tend to have higher interest rates due to the short duration and higher risk of the loan.
If you don’t think you can finish your project and sell the property in time, you may end up paying more in interest and extension fees.
If you fail to pay back the loan before the loan comes due, then you will need to find a way to sell or refinance the property to avoid the lender foreclosing on the property.
When deciding to borrow this type of loan, it’s important that you have a solid plan that factors in unforeseen obstacles and contingency plans so you can ensure a high likelihood of success in a short timeframe.
On the other hand, hard money loans can be very fast with less red tape while allowing you to capitalize on great investment opportunities.
You may have some flexibility in the repayment schedule, depending on the lender, and lenders can often do their own underwriting to offer flexible terms.
For a short-term loan with a quick turnaround, a hard money loan may be just what you need for your next real estate project.
Whether you’re a first-time house flipper looking for a financial partner to help fund your real estate endeavors, or a seasoned investor or developer looking for an efficient source of capital for your business, a hard money loan can be helpful to get your next project off the ground.
Check out our recently funded projects page to see how other people have done this very same thing and reaped the rewards.
If you’re ready to roll on your fast-moving project and need some fast-moving cash to fund it, come see us! We love to help people build wealth through real estate.
BORROWER FAQs#
What is a Private or Hard Money Loan?
Private and hard money loans come in many variations, but most are short-term loans provided by an investor or group of investors when conventional financing is unattainable or undesirable.
Most private lenders and hard money lenders, like Cetan Funds, finance projects like fix and flip rehabs, rental properties, commercial bridge loans, land development, and many other unusual or unconventional properties and projects. A private or hard money loan can help real estate investors, developers, builders, and small businesses grow their portfolios and businesses faster than they could on their own.
Here at Cetan Funds, we empower people to build wealth through real estate.
Why choose hard money vs. bank loans?
Hard money (or private) loans are built for speed and flexibility. Banks often require months of paperwork, strict borrower qualifications, and rigid underwriting standards. At Cetan Funds, we base our lending decisions primarily on the value and potential of the property, not just the borrower’s financial profile. This means we can finance properties and projects banks typically decline due to condition, complexity, or unusual circumstances.
Hard money loans are ideal for time-sensitive opportunities like fix-and-flip projects, new construction, or land development.
Where Does the Money You Lend Come From?
Cetan Funds offers two pooled private equity fund investments for Oregon residents who qualify and accredited investors. Our two funds, called Cetan Income Fund and Cetan Opportunity Fund, serve as the primary source of capital for the loans that Cetan Funds originates.
Rather than matching individual investors to individual loans, or borrowing capital from banks or Wall Street as many hard money lenders do, at Cetan Funds, we manage our own pool of funds. The investors own shares of their fund limited liability company and the principals of Cetan Funds manage the portfolio of loans owned by the fund. All loans are serviced by Cetan Funds. To learn more about the advantages of this structure, please contact us.
What Types of Loans Does Cetan Funds Finance?
We can lend on most commercial and residential property in Oregon and SW Washington if the loan is for business or investment purposes. We provide short-term financing for bare land, land development, new construction, rehabs, and residential and commercial bridge loans.
Do You Lend on Primary or Secondary Residences?
No. We can only lend for business or investment purposes and do not lend on owner-occupied residential properties. Check out our blog to learn more about what we do and what we don’t do.
Where Do You Lend?
We lend exclusively in Oregon and SW Washington because we know the market well and are committed to helping grow our local market. We lend primarily in Western, Southern and Central Oregon with an occasional loan in Southwestern Washington.
Do You Only Look at the Property/Collateral?
While we are primarily a “collateral-based lender,” we do not solely look at the property/collateral. In our experience, who you lend to is just as important as what you lend on.
We strive to build long-term relationships with our borrowers, and we cannot achieve that if we focus solely on their real estate. So, we also take into consideration character, capacity, capital, and other conditions.
Weighing these important factors, which are often overlooked by other private and hard money lenders, helps us accurately measure risks for both our borrowers and our investors while allowing us to offer better all-around results for our clients.
Do You Have Minimum or Maximum Loan Sizes?
How Long Are Your Loans?
We offer loans as short as 3 months and as long as 60 months; however, most of our loans are for 6 to 12 months. Plus, we build in automatic extensions to every loan to ensure borrowers have time to deal with unexpected events and circumstances.
What Are Your Application and Underwriting Requirements?
Cetan Funds loans are customized to fit each specific scenario. Therefore, application and underwriting requirements can often vary depending on the situation. Typically, we require the following:
For Applications:
- Cetan Funds Business Loan Application (online form, link provided by your loan officer)
- Personal financial statements for all loan guarantors (form provided)
- Property/project description
- Summary of construction or investment experience (if applicable)
For Underwriting:
- 2 years of tax returns for all loan guarantors
- 3-6 months of bank statements
- Project/property-specific documentation (such as purchase/sale agreements, lease agreements, business financials, etc.)
- Detailed rehab or construction plans and budgets (if applicable)
Please contact us for more information on the application and underwriting requirements for your specific scenario.
How Fast Can I Get a Loan Decision?
How fast is funding?
We pride ourselves on moving quickly. Loan decisions are typically made within 1–2 business days, and pre-approval can often be issued just as fast. Once approved, we can close and fund in as little as 3–5 business days, depending on the project and documentation. That speed lets you secure capital and act on opportunities without the delays common with traditional lenders.
Can I Get Pre-Approved?
How Fast Can You Fund and Close a Loan?
As quickly as 3-5 days.
What is Your Minimum Down Payment?
What Are Your Interest Rates?
Rates vary depending on the project. Typically, annual interest rates are 10-12%. Interest is only charged on the outstanding balance. Therefore, interest is not charged on construction or rehab funds until they are drawn. So, for most of our short-term construction and rehab loans, borrowers actually incur far less than 10-12% in interest expense. For more information, please contact us.
What Are Your Loan Fees?
Origination fees vary depending on the project. Typically, origination fees are 2-4% of the loan amount. We also charge a $995-$1,495 administrative fee at closing.
Can I Live in the Property While I Have This Loan?
Unfortunately, no. Our borrowers cannot live in the residential properties we finance for them.
The only exception is in very specific commercial loan scenarios. If you wish to get a loan on a property you would like to live in now, or in the future, please contact us so we can help you find a lender for that. We are happy to help.
Can I Pay Off My Loan Early?
Do You Fund Rehab and Construction Loans?
On Rehab or Construction Loans, Do You Charge Interest on the Full Loan Commitment?
No. Interest is only charged on the outstanding balance.
How Do Construction Draws Work With Your Loans?
Construction draws are typically disbursed for work completed, materials purchased, or subcontractor invoices ready to be paid. Borrowers work directly with their loan officer, their main point of contact from start to finish on the project, to submit draw requests up to twice per month.
We do not charge fees for construction draws. Draw requests include a breakdown of the items awaiting reimbursement or payment, evidence showing the completed work or materials on site, and copies of subcontractor invoices or receipts over $2,500-5,000. Draws are typically processed in 24-48 hours.
Do You Fund Loans on Bare Land?
Yes, we provide bare land loans. Each situation is different. Please contact us for details.
Do You Finance Mobile or Manufactured Homes?
What is “Cetan”?
Cetan comes from the Lakota language and means “hawk spirit.” We chose it to represent the values we bring to lending: vision to see opportunities, loyalty in building long-term relationships, and speed in delivering funding when it’s needed most.
Supporting local organizations like the Cascades Raptor Center also helps us honor that connection to hawks and our beautiful raptors in the Pacific Northwest while giving back to the community.