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Need a layman's guide to the ins and outs of hard money loans? We'll give the details on hard money lenders and appropriate use of these loans for real estate investing. Continue reading for the negatives and positives of the use of hard money for investment purposes.

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 third party lenders and unlike the big institutional lenders charge interest rates above market rates. Hard money lenders typically require 5-10 percentage points higher interest rates than private money or conventional lenders. Plus, hard money lenders will typically charge you "points" on a loan which is pre-paid interest thereby making this a rather expensive funding alternative.

So why would you use hard money loans? Well, for one thing, hard money loans are typically for around 65-70% of the ARV (after repair value) of the property. This is an important point because it means you can get finance for any rehab costs that you have ahead of you and if your ARV is sufficiently greater than your costs you can get into a deal with little or no money down.

Another benefit or hard money loans is that instead of lending to you based on your creditworthiness or character, hard money lenders will lend based on the security of the loan. So, while you may get better rates elsewhere, the flexibility of hard money can make it a very attractive option for investors with poor credit or loan serviceability or even for those that don't have the time to wait for approval from conventional lenders.

Hard money lenders are found in various places. Your local newspaper probably provides a "money to lend" classified category. Check there first. There is also probably a local real estate investing association. Local hard money lenders solicit new business at these meetings. Finally, run an internet search for "hard money lenders" or "hard money loans." You are sure to find hits.