Monthly Archives: April 2015

When does it make sense for a developer to use a hard money loan?

Even investors and developers with strong financial statements and access to bank credit often choose to use private money loans (also called “hard money loans”). Situations where private money loans make the most sense include those where the borrower:

• Requires a quick closing and banks cannot meet the deadline;
• Better opportunities than cash;
• Wants to avoid spending too much time raising equity or debt from many different smaller investors, but prefers to instead focus on finding new opportunities;
• Lacks the patience or time to deal with the bureaucracy of securing a loan from a bank;
• Excellent investment opportunity, but does not have sufficient financial strength to get a bank loan, and/or;
• Has a bank line of credit but needs a larger loan than is allowed under the existing bank line.

The common theme is that there is an opportunity for the borrower to generate substantial gain easily, and the cost of interest and origination fees is small relative to the anticipated profit, even given the higher interest rates charged by private lenders versus banks.

Hard Money Lenders – All you need to know about them

First time investors are always curious about hard money lenders. Let us discuss few basic principals about hard money lenders. what the term “hard money” means. Money while being discussed between the investors, it is either considered to be “soft” or “hard”. Hard money, as the name shows is not so difficult to obtain, but the terms and conditions are very specific and a bit more strict. They have to be, because most hard money comes from private individuals with a great deal of money on hand. This is why hard money is also known as “private money”. The money used for investment purposes comes from people, just like you, and not from a typical lending institution. So they give first priority to protect their investment capital. This is why the terms have to be strict.

It is always better to know what the terms are when dealing with a hard money lender so you can find the one that completely suits your requirements. Typically they will only loan you up to 70% ARV (after repaired value). This means that a hard money lender can loan you up to 70% of what the home is worth in repaired condition.

Other terms that can be expected from hard money lenders are high interest rates. Interest rates vary from 12% – 20% annually and terms can last for 6 months to a few years. These rates may vary depending on your credit score and experience. In most cases, there will be closing costs or fees to use hard money.