Ever wondered about hard money lenders and when they should be used in your real estate investing? Well, here's the layman's guide to getting started with hard money loans. We'll begin by presenting the negative aspects of hard money but introduce the benefits towards the end... so read on.

A hard money loan will often be one of the last resorts for funding your real estate deals because you are dealing with experienced investors who are looking for good returns on their money. That means it is generally amongst the most expensive money you can borrow.

Hard money lenders are 3rd party lenders who charge interest rates higher than the current market rates. The interest rates charged by hard money lenders are typically 5-10 percentage points higher than the conventional lenders. Hard money lenders will also charge "points" on a loan which is essentially pre-paid interest on loan. All this makes, borrowing from hard money lenders an expensive alternative.

So, on the plus side, hard money loans are generally worth approximately 65-70% of the after repair value (ARV) of the property in question. This is beneficial because it allows you to obtain the necessary cash to finance renovation costs as well as the purchase price. This means you can potentially get into a deal with little to no money down if the after repair value to cost ratio is high enough.

A hard money loan is extremely beneficial because you are not qualified based on your credit score or character, but hard money lenders qualify you based on the collateral in the loan. You might be able to get better rates elsewhere, but this offer offers flexibility to those whose credit history or loan serviceability, or even time schedule can't allow for service from a conventional lender.

So where do you find hard money lenders? The first place to look is in the "money to lend" section of your local newspaper. The second would be at a meeting of your local real estate investing association. Local hard money lenders will often attend to solicit new business. Finally, don't forget to check online - just search for "hard money lenders" or "hard money loans".