Appraisals Are the Key to Hard Money Loans

Hard money loans represent an alternative way to borrow without having to go through a retail or commercial bank. They are a good tool for real estate investors looking to bridge the gap between a current purchase and a future sale. Moreover, experienced investors know exactly how hard money works. They know that appraisals are the key to getting the loans they need.

In the real estate scenario, an investor might be looking at a new property that appears to be in high demand. That investor might want to move as quickly as possible so as to not lose out on the deal. So where does he turn? To a hard money lender like Actium Partners.

Actium Partners is a Salt Lake City hard money lender that specializes in the types of loans real estate investors need to act quickly. And like all others, Actium relies heavily on appraisals to make their decisions.

Hard Money Requires Collateral

Getting back to the aforementioned real estate investor, he sees a deal he cannot pass up. He has to act fast, so he looks for a hard money loan. Getting that loan is going to require that he put up some sort of collateral. As a real estate investor, he has plenty of properties to choose from.

Being a smart investor, he knows he is going to have to put up a piece of property that is either equal to or greater than the value of the property he wants to buy. If he is looking at purchasing a $1.5 million parcel in a commercially zoned area, his collateral is going to have to be worth at least that much.

Rest assured the lender is going to do a full and complete appraisal on whatever property he puts up. The results of that appraisal will determine how much the lender is willing to lend, if anything at all.

What Goes Into an Appraisal

The smart investor also knows exactly what goes into an appraisal. He is not about to offer a property that doesn’t stack up. So what will the lender be looking at? A lot of the same things that go into mortgage appraisals.

A wise lender looks at the value of the property being offered in relation to other similar properties in the same general area. The lender looks at recent sales of comparable properties, reasonable estimates of future value, and the condition of the property itself.

The whole point of the appraisal is to determine how much the lender could get for the property if it has to be foreclosed on to cover a default. A lender is never going to lend more than the collateral is worth. The real estate investor knows that, so he chooses the property he intends to offer wisely.

Ensuring a Good Appraisal

Is there anything the investor can do to ensure a good appraisal? Absolutely. In fact, experienced real estate investors are proactive in this regard. They have enough experience with hard money to know what it takes to satisfy lenders.

The smartest among them make a point of maintaining all of their properties in the best possible condition. When they are dealing with rental properties, they want to keep them filled with paying tenants. When they are dealing with land under development, they do their best to get improvements done as quickly as possible.

Ensuring a good appraisal is a matter of doing whatever is necessary to maximize the value of the property in its current state. A property with a high enough value makes for strong collateral.


James Harrison: James, a supply chain expert, shares industry trends, logistics solutions, and best practices in his insightful blog.