![]() ![]() Gap lending and real estate investing go hand-in-hand. That means the better the deal, the more likely they will be to lend the money. Not unlike a hard money loan, the money received from gap lenders is more asset-based than anything else. Since gap lending is technically riskier, investors must convince the gap lenders that their investment would be worthwhile. Those who would rather work with private or hard money lenders will need to attract interested investors. Those who elect to borrow from a traditional bank will need to apply, a lot like a traditional loan. If for nothing else, gap loans are made available from both institutionalized banks and private money lenders. Receiving a gap loan-not unlike almost every other source of funding-will require investors to decide whether they want to pursue traditional or alternative forms of funding. While not standard, some gap lenders will request a percentage of the proceeds from the sale of the house. Typically, the rate will be upwards of 1% higher than more traditional mortgages. Therefore, the cost of a gap loan may not be worth the price of admission for those who won’t use the funds under the right circumstances.ĭue to the increased risk facing gap lenders, investors can expect to pay more interest. The added costs are typically meant to meet the needs of those who intend to flip a high volume of properties simultaneously. The short-term nature of gap funding makes it less ideal for investors attempting to flip a single deal. While it may serve as a great source of interim funding, there are some drawbacks investors need to pay special considerations to: Gap funding has proven very useful for investors who want to remain in a more liquid position.ĭespite how useful gap funding has proven to be for investors, it is very situational. ![]() Gap money can help investors fund more than the acquisition of a property it can be used for rehab costs and any costs incurred from trying to sell and market the home. As a result, gap funding makes it possible for many investors to acquire deals they otherwise wouldn’t have been able to. ![]() ![]() Gap funding for real estate investors may cover the difference between hard money loans and the remaining acquisition costs of the subject property. With gap funding, the need to wait for one deal to close before starting another one becomes obsolete. More specifically, gap funding mitigates the risks one may encounter from a delayed sale or any instance that unexpectedly slows down the rehab process. Gap funding is tailor-made for high-volume rehabbers, as it is ideal for those who fully intend to maintain several projects at once. That said, there are other benefits investors will be very happy to hear: Gap funding serves a specific purpose and is best suited for investors flipping a high volume of properties. While gap funding has helped countless real estate investors carry out deals they may not have otherwise had the chance to, it must be used conservatively. Additionally, gap funding lenders may also require borrowers to hand over a percentage of the deal’s resulting profits. Since gap loans are technically a second position loan (behind the original loan), they’ll compensate for the added risk with higher rates. It is worth noting, however, that gap loans typically coincide with more expensive rates than their private and hard money counterparts. That means gap funding for real estate investors may cover the rest of the acquisition costs, in addition to the expenses incurred from rehabbing, marketing, and selling the property. More importantly, gap money may cover the difference between the original hard money loan and the remaining cost obligations. Real estate gap funding can make up for the shortcomings of most hard money lenders. As a result, most borrowers will need to secure additional capital that’s where gap funding comes into play. Most lenders, for example, will only lend a percentage of the purchase price or after-repair-value (ARV)-usually somewhere around 70% of the home’s value. However, it’s uncommon for most private and hard money lenders to cover the entire cost of the purchase and rehab. Most real estate investors will rely on private money or hard money loans for impending deals. ![]()
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