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Hard Money Facts: 5 Things You Should Know Before Investing

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Hard Money Facts: 5 Things You Should Know Before Investing

There are many misconceptions about hard money loans that are completely untrue. If you are looking for hard money facts, you’ve come to the right place. Here are five hard money lender facts.

Hard Money Facts #1

It’s a Legitimate Business

Hard money is basically a business or an individual who lends as a business.  What that means is that a hard money lender is no different than a bank – to some degree – because they in essence do what banks do, they lend money. The difference is that they finance quickly and they do not have the strict regulations that conventional lenders do. These loans are generally short-term loans and, because their rates are higher than conventional lenders, they are meant for short-term projects. Hard money lenders are legitimate businesses which are run as LLCs, S Corps or Sole Proprietorships with a business structure and specific investment strategies.

Hard Money Facts #2

Loans are Backed by Assets

The word “hard” in hard money lender just means asset. Basically, when you borrow money from the hard money lender, the interest is secured with collateral which is real estate. Hard Money is a private lending alternative for Real Estate investors. Private investors/Lenders will lend their money and will use the property as the collateral. Hard Money Lenders normally don’t make decisions based on credit, but they do based on equity and income. It’s as simple as that.

Hard Money Facts #3

Rates are High Because of Lenient Regulations

Hard money lenders know that the real estate investors who come to them for loans are not going to be able to borrow money from a bank for various reasons such as bad credit. hard money lenders are not concerned with credit. Hard money lenders accept borrowers that have had foreclosures, bankruptcy, late mortgage payments, collections, etc.

Hard money lenders normally generating their income from points they charge during the escrow process. Income can be generated also from the interest rate being charged on the mortgage, so the hard money lender will charge 11% on the loan and the trust deed investor will get 10%- In this scenario the hard money lender makes 1% spread. Rates are normally between 8%- 12%, points start at 2.5 from the loan amount.

Hard Money Facts #4

You Can Make a Profit

When it comes to hard money loans, it is important to have a plan. Because the rates are higher than conventional lenders, you want to make sure that your investment will be profitable and that means calculating all of your costs and evaluating value of the property. The purpose of a hard money loan is to provide financing for an investment property which you will then sell for a quick profit. If you know exactly how much you need, including the money you need for repairs, you will save yourself from borrowing too much or not enough. Before you request the loan, estimate how much the maintenance, repairs, or construction will cost. An important aspect of hard money lenders is transparency so make sure that you have sufficient details and supporting documentation.

Hard Money Facts #5

Legitimate Business Do Business with Hard Money Lenders

Just because you cannot you get a loan from a bank does not mean that you’re not necessarily bank-worthy. It simply means that, because of the strict guidelines, it’s harder to get a loan from a bank. It’s not that the bank does not want to lend you the money you need, it’s that they simply can’t.

Bigger Pockets explains:

“This is the reason why so many legitimate businesses use hard money loans – not just in real estate – but in all forms of business. This includes funding for capital equipment and for continuing operations.

Hard money is not just a real estate thing, it’s for all kinds of business financing as well. In many cases if a business owner cannot secure traditional loan funding from a bank, they turn to hard money. Whether it’s for a business owner to buy or lease new equipment, purchase supplies and inventory or remodel their offices, many business use hard money loans just like us real estate investors.”

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