North Dakota is a very small state, but it’s a growing place to invest in real estate. it’s the third least populous state in the country. It is also a very affordable state for real estate investors due to having low property taxes. There are many great markets to invest in North Dakota, including Fargo, which is located in eastern North Dakota, Grand Forks, which is home to the University of North Dakota, Bismarck, another college town that’s home to five colleges, and Minot, home to an Air Force base in Ward County.
The biggest and fastest-growing industry in North Dakota is oil. The Bakken oil reserve is driving an oil boom and making the North Dakota real estate market appealing with an influx of workers. Recently, the North Dakota real estate market has been hit hard by the coronavirus pandemic, leading to much pent-up real estate demand. Median home prices have been appreciating, but not as rapidly as they have the past decade.
Right now, North Dakota is a slight seller’s market, but each city is different from the rest. A seller’s market means demand is outpacing supply as a whole in North Dakota. It means houses in North Dakota are selling fast and for higher than listing price. Real estate investors often need to put down very fast bids to be competitive in the state.
Hard money loans might be the best way to invest in real estate in North Dakota. Hard money loans are otherwise known as short-term bridge loans or last resort loans, but they’re mostly used for real estate transactions. They’re most famously used for fix and flips. Their biggest advantage, particularly in seller’s markets in North Dakota, are that they can be approved very quickly. They can be approved within a couple of days, as opposed to traditional mortgage loans, which can take a month or more to be approved.
Hard money loans can be approved so quickly because of the asset they’re based on. Hard money loans are based on the property, and their terms are based on the after-repair value of the property. By contrast, traditional mortgage loans are based on the financial standing of the applicant and credit score.
While most hard money lenders still require minimum credit scores of 600 to 620, the majority of hard money lenders use the projected after-repair value of the property for the terms and rates of their loans. Since hard money loans use the property as collateral, if a borrower defaults on a hard money loan, the lender collects the property. However, if a borrower defaults on a mortgage, the bank initiates lengthy foreclosure proceedings.
Because of this, hard money loans are inherently risky. This is reflected in their terms and rates. Hard money loans have higher interest rates (8–15%) than traditional mortgage loans, which have an interest rate of just over 4% on average. Hard money loans also have shorter repayment periods (more or less a year) than those of traditional mortgage loans, which famously can have 30-year repayment periods. Lastly, hard money loans have lower LTV ratios, which means they require larger down payments than traditional mortgage loans.
It’s important to only trust the best hard money lenders, since some hard money lenders have a reputation as “loan sharks.” New investors in particular may be vulnerable to bad hard money loans since most lenders require a successful track record of fix and flips and other investments.
At Hard Money Lenders IO, we have made a list of the best hard money lenders in North Dakota. Here are the best partners for your real estate investing journey.