What is a Recession?
Recession is defined as “a significant, widespread, and prolonged downturn in economic activity.” In events of recession, economic activity slows down, businesses that are affected will realize a slowdown in their operations, there will be a rise in unemployment, and demand for many products will decline.
Recession in Real Estate
In the Real Estate industry, there will be diminishing property values due to low demand. To counter the effects of declining economic activities, lower market interest rates, including mortgage rates, will encourage people to apply for loans and spend. In a recession, you can take advantage of interest rates pushed down by the Federal Government to stimulate economic activity and encourage spending. Having a property loan during a recession will not work if you do not have strategies planned for using private loans in a recession.
Hard Money Loans As Alternative Lending Partners
Low rates and lower property values present opportunities for improving your real estate portfolio or business. Equity financing, buying rundown properties, or even renovating some rentals are some projects you can line up in which you will need a lending partner, your bank, for example. Traditional banks generally become more strict in lending during a recession because of a higher probability of delayed payment or non-payment of amortizations and debts. However, there are other funding alternatives that you can avail of, such as hard money loans. If you reside in and have business in Texas, lenders in Houston offer hard money loans even in a recession. Hard money loans provide financial respite in an economic downturn or recession. And you should be ready with a plan or strategy to maximize your returns, or else you will end up with more debt than you can handle.
Strategies For Using Hard Money Loans During A Recession
Low loan rates help stagnant or declining business activities improve. You can use these low mortgage rates on your existing real estate properties and portfolio, converting your equity to highly liquid assets such as cash. Cash that you can use for new financial or business initiatives. Here are some strategies for using hard money loans in a recession:
1. New Income Opportunities Through Private Lending
Engage in new investments such as private lending. With your new funds, you may be able to generate income from private lending despite your new amortizations. Lend your newly released funds at higher rates than your hard money loan rate. For instance, if your loan rate is 8% and you lend the same funds to someone else at 12%, you gain 4% from the transaction. In effect, your loan amortization is paid for by your borrowers, and you will still be able to gain from the deal. You can accomplish this with a joint venture with established lenders or go solo with your funds, lending only to those you know.
2. Pay-Off High Interest Loans
Use the funds for Debt Consolidation by paying off your high-interest-rate personal loans and credit card loans. Your total monthly installments will be lower despite your new loan. This strategy increases your monthly disposable income, which you can save as emergency funds.
3. Purchase Properties for Rehab Using Private Money
An economic slowdown drives prices of goods and almost everything to new lows, real estate properties included. You can use your new funds from hard money loans to buy properties prime for rehabilitation. So when the economy begins to take off, you can start the house-flipping projects you have put on hold. It is best to study the places where you want to invest first since not all areas are highly marketable when the economy recovers. Try to invest in properties around cities where economic activity is highest.
4. Maintain Good Credit Standing
Use the funds to stay current with your pay for your supplies and other company expenses to maintain good credit standing with your business partners.
The Benefits Of Hard Money Loans During A Recession
Hard Money Lenders are providers of asset-based loans because they are inclined to give significant consideration to the property or asset component of a loan application. The financial capacities or credit standing of borrowers comes secondary. That is, the real estate property takes precedence in the evaluation.
You can have the most advantage with a Hard Money Loan if you have substantial equity on your property or properties, more so if these properties are free from encumbrance and mortgage. Here are some benefits of applying for a Houston Hard Money Loan in a recession.
- If you apply for a cash-out equity loan from a hard money lender, you can use these funds to fund the operations of a business during a recession. These funds can help you with your expenses until your cash flow becomes healthy again.
- There are no usage restrictions with hard money loans. You can use the funds for any purpose so long as it does not violate any laws. Hard money loans do not restrict or limit how you use funds. Traditional loans, on the other hand, are restricted to a single purpose only.
- Because hard money loans have no restrictions on their purposes, you can use them for other businesses that may need a fresh infusion of funds during a recession. For instance, if you are experiencing delays in collections, hard money loans can help with your operating funds.
- Hard Money Loans are asset-based loans making them quicker and easier than traditional mortgages. Even more so, if you deal with local lenders, such as Houston Hard Money Lenders, the evaluation and release of funds are done locally, making these loans ideal as quick sources of emergency funds.
Recession and Houston Real Estate, Our Final Say
You may yet find opportunities to lessen the impact of a recession on your businesses or even your life. If you are sitting on assets, you can monetize them to fund investments and improve your finances or cash flow. With fresh funds, you can buy properties cheaper with depleting home values.
In a recession, Houston Hard Money Lenders bridge the gap in financing when traditional lenders tighten their policies. Do you need to know more about hard money loan benefits or learn the strategies for using hard money loans in a recession? Let us know how we can help you. Give us a call at 832-7709415 or send an email to info@gllholdings.com. We will get back to you soonest. You can also take our pre-qualification test and questionnaire for hard money loans, and we will pre-evaluate your loan application.
