When done right, real estate is one of the best investments one can make today. For starters, it offers a steady flow of cash, the property may appreciate depending on its location, and several tax benefits are associated with real estate development. 

Although it's a good investment, real estate requires high capital. Even if you have a reliable amount of money, real estate investment will often require outside financing through loans. It's not recommended that you develop an estate that you can afford. It would be best to look at the market demand and the possibility of appreciating. You may have to pour in more capital when considering all these factors.  

Due to the high cost of starting up, people tend to shy away from investing in real estate. Additionally, not everyone is exposed to the information on types of working capital business loans and financing for real estate developments. That's why you need to conduct thorough research before acting on your real estate investment decision. This article will explore short-term funding for real estate and the options you can consider.  

What Is Short-Term Financing? 

Short-term financing refers to loans borrowed to meet needs within a few days up to a year. With such loans, they’re processed by the lender quickly, and you're also required to pay them within a shorter period than long-term loans. Since the repayment period is shorter, you pay more per month to cover the entire debt. 

However, not everything about short-term loans is negative. For starters, people prefer them since they have a lower interest rate. When the lender is calculating the interest rate, they don't necessarily factor in inflation since the loan is to be paid in less than a year. As a result, the interest rate is significantly lower than that of long-term loans.  

Here're some of the things to consider while taking a short-term loan for your real estate investment. 

1. 1. Consider Using Cash 

Cash is a very resourceful mode of financing among real estate investors. Due to the convenience cash offers, you're more likely to enjoy discounts if you're looking to buy a property. Similarly, cash saves you from the cost of interest incurred by other financing methods. Investors who use cash get their instant equity on investment, and they’re liquid with sufficient cash flow.   

1. 2. Hard Money Lender 

This is one of the most common short-term financings for people looking to invest in real estate. Unlike traditional bank loans, hard money is borrowed from a private party, either an individual or a group. Since private individuals own the money, there are more looser requirements to prove creditworthiness.  

However, the downside of hard money is that they accrue high interest, sometimes double the interest for bank loans. The amount of interest is calculated as a percentage of the property's purchase price and sometimes the after-repair value. In addition to the interest, hard money lenders also charge a fee which is determined by how big the loan is. Other than that, most lenders of this type of financing only fund 50-70% of the entire project.  

This type of financing is used for buy and flip projects, run-down properties, building with poor cash flow, and other risky real estate projects. Due to the cons mentioned above, you have to know your hard money lender-specific requirements before signing up for financing.   

1. 3. Private Money Lenders 

Private money lenders give your short-term financing for a period of between six months to one year. The loan is offered at an agreed interest rate, and they’re mostly given to real estate owners who commit to raising the value of the development. 

1. 4. Bridge Loans 

As the name suggests, this is a loan you can use as a bridge while you're still looking for other forms of financing, sometimes long-term. For example, if you want to construct a building on a vacant lot, you can seek a short-term bridge loan as the long-term construction loan is being processed. 

Bridge loans are also used to boost other forms of funding. For example, when the loan you acquired isn't enough, you may boost it with a bridge loan. Also, if you lose other sources of finances, a bridge loan will come in handy. 

1. 5. Mezzanine Loans 

This is a hybrid of a debt and equity financing. When you take a mezzanine loan, you give the lender the right to acquire your real estate property if you default payment.  

There is very little due diligence done to ascertain creditworthiness with mezzanine loans like hard money lenders. Therefore, the loans have a high interest with the render expecting a return of between 20-30% to cover for that. This short-term financing is mostly used by real estate investors looking to develop condos.   

To Sum It Up 

There's no reason to shy away from venturing into the real estate world. With short-term financing, you’re a better place to finance your projects. Consider the above five options discussed for your short-term financing for real estate investment.