However, like any form of financing, hard money loans come with specific disadvantages that should be evaluated carefully. For investors considering this route, it is important to assess both the benefits and the limitations. This article focuses on the cons of hard money loans in St. Louis, offering a realistic view based on the practices of experienced lenders like Westre Financial Group.
Understanding Hard Money Lending
Hard money loans are primarily asset-based. This means approval hinges on the value and potential of the property, rather than the borrower’s credit history or financial profile. Lenders evaluate the deal itself, looking closely at purchase price, renovation cost, anticipated resale or rental income, and market comparables.
In St. Louis, a market with strong local dynamics, hard money lenders often bring deep regional knowledge to the evaluation process. Westre Financial Group, for example, only lends within St. Louis City and County, where they have long-term experience owning and managing hundreds of rental properties.
Limited Scope of Funding
One of the primary cons of hard money loans in St. Louis is the limited use of funds. Borrowers must have their own capital available to complete renovations. This excludes many newer investors who may lack sufficient liquidity.
Westre Financial Group focuses solely on financing the purchase price of investment properties. If a borrower’s strategy involves leveraging property equity post-purchase, a hard money loan may not support that plan.
Geographic Restrictions
Another notable disadvantage is geographic limitation. Some lenders, such as Westre, only operate within a specific region. Their loans are available exclusively for properties located in St. Louis City and County. While this local focus allows them to provide in-depth knowledge and faster processing, it may restrict opportunities for investors working across state lines or in other markets.
For out-of-area investors, this can mean either adjusting their investment footprint or finding a different lender altogether.
No Funding for High-Risk Properties
Hard money lenders often avoid funding properties in high-risk zones, such as flood plains. Westre Financial Group explicitly states they do not loan on properties located in flood zones due to the prohibitive cost of flood insurance. While this protects both lender and borrower from future financial strain, it may limit access to deals in certain neighborhoods where flood risks exist but are manageable.
Investors must ensure that potential properties meet the lender’s location and risk criteria before committing time and resources to an application.
Strict Borrower Expectations
Although hard money loans are not credit-based, that does not mean the standards are relaxed. In fact, lenders like Westre expect a certain level of preparedness and financial capability from their borrowers. Their position is clear: if a borrower does not have funds to complete a renovation, they likely should not pursue the deal.
This approach, while grounded in experience, may deter first-time or undercapitalized investors. The expectation is that the borrower understands the real estate business, is financially stable, and can act quickly to manage renovation and rental activities.
Higher Origination Fees
While Westre Financial Group is transparent about its fee structure—charging a 2% origination fee and no additional “junk fees”—this cost may still be higher than fees associated with traditional bank loans. For some investors, particularly those working with thin margins, the fee can impact overall profitability.
It is also important to note that the entire lending process is designed for speed and simplicity. There are no credit checks, appraisals, or processing fees, but this streamlined model may not work for every investor, especially those who prefer more structured financial products.
Conclusion
When reviewing the cons of hard money loans in St. Louis, investors must consider their own readiness, financial resources, and deal strategy. While hard money loans provide quick access to capital and reduced paperwork, they also require the investor to be well-prepared and committed to a clear business plan.
Westre Financial Group stands out as a seasoned and highly focused lender, offering 100% financing for purchase price only, with fast approvals and deep local expertise. Their model may not suit every borrower, but for experienced investors focused on St. Louis residential rentals, they provide a direct and reliable path to funding.
To learn more about how Westre Financial Group can support your real estate investment goals, visit their website and explore their application process today.
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