If you are a real estate investor, then you would know what an owner-occupied deal is. Basically, it is a property, which is already inhabited and a Money Lender likes to stay away from these kind of deals.
The basic reason behind this is there are completely different and quite complicated rules and regulations for an owner-occupied property as compared to the vacant one. Therefore, residential hard money lenders are not willing to fund for such deal as there’s going to be a lot of paperwork involved.
So, if you are an investor and are planning of remodeling an owner-occupied property, then it is better to weigh the pros and cons again because you find it very difficult to get funding for such deal.
The reason behind avoiding these properties is that most of the hard money lenders are not that big. They don’t have any financial assistance and they have to do everything on their own. So, they prefer short term lending, where they can close a deal within six months, without much hassle.
Whereas, the owner-occupied properties take much more time in paper work as well as in remodeling and ultimately, they are not very profitable as well. Sometimes, remodeling of these properties get so much delayed that it ultimately goes into foreclosure, which no one likes.
Residential hard money lenders are more interested in single family homes particularly, as they are fast to remodel and the profit margin is really high. Although, they also work for remodeling duplexes, threeplexes or fourplexes but they prefer single family homes.
Basically, there are two types of private money lenders.
One, which have been discussed above i.e. short term lenders, who wants to fund for a maximum of 6-12 months.
The others are called long-term lenders, which can lend money for 3-5 years but they are very difficult to find.
The whole concept behind a hard money loan is to help someone, who is willing to buy a property and rehab it but doesn’t have money to do it or is unable to get a loan from traditional lending. Private money loans are best for them but these are good for the borrowers and lenders both, if taken for a short period of time.
Nobody wants to take risks and everyone in the real estate investment business is looking for profit and so do the residential hard money lenders. Your property serves as a security deposit foe their money. Due to their real estate background, they can realize, which property is worthy enough to lend.
On the other hand, if you have a deal, which is quite risky and the lenders can foresee that it won’t be a profitable deal, then they won’t fund you. They don’t like taking risks and they are not here to take risks. They are here to grow their money with profitable deals.