Outside financing remains far from the norm in the investor market, where banks pulled back from lending after the housing crash and recession.
In October, nearly three-quarters of investor purchases — 72 percent — were paid in cash, according to Inside Mortgage Finance's monthly housing pulse survey.
Industry members said a new crop of private lenders are moving to fill the gap left by banks. That includes "hard-money" lenders, which accept property as collateral in exchange for short-term loans with high interest rates.
Editor’s Note: We completely disagree with the notion made in this article that hard money loans are very risky for lenders. Private lenders lend to borrowers with collateral, done in the right way a hard money loan will be secured by real estate worth much more than the actual loan. It may not be a lender's first choice to seize a property but the risk is squarely on the borrower. Here are our article highlights:
- It's easy for borrowing rehabbers to pay too much for a property, underestimate how much work is needed and overestimate the returns on the sale.
- Hard money lenders usually charge 12 percent interest or more while working with borrowers who wouldn't qualify for loans from a traditional bank.
- The private lending industry is growing fast and becoming more professional.