Funding requests abound in the modern economic world. Mortgages have been a hot topic of discussion in recent years, investment opportunities have arisen, giving those with the means of providing loans to others a chance at generating nice interest returns on their money. Conversely, those who are seeking loans can find much less red tape in their acquisition, provided they agree to pay a premium interest rate.
Commercial hard money lenders, for example, do not need to tie their interest to the banking industry standard. Instead, they are able to charge 2 to 10 points more per loan. This can create an incredible opportunity for return when considering non-traditional funding requests, such as mortgage pools.
There are two options for those interested in hard money lending: as an individual or via an investment firm. The difference in these two hard money loans options involves risk versus return.
Obviously, hard money lenders that that assume all of the risk will reap the highest rates of return. For example, let’s say that you are looking to dive into the Los Angeles hard money game and have an opportunity to fund someone’s purchase of real estate in the warehouse district. If you can fund the loan yourself, there will be no split in the amount of return generated by the interest rate you set. Should you require the assistance of one of hard money lenders firms found downtown, they will help you fund the purchase of the real estate, help share your risk, and assume some of your profits.
When putting together hard money loans, a solid team must be in place. Including real estate agents, appraisers, CPAs and attorneys can all be helpful throughout the process and ensure that your hard money lending endeavor is legally covered and operationally efficient.
Geographic areas will be a key detail when considering the application of commercial hard money strategies. There are several organizations in a metropolitan area that are looking to help fund individual hard money lenders such as yourself or assist in the acquisition of prospective hard money loans opportunities.
Let’s revisit our Los Angeles hard money scenario. Assuming that you have put together a team or elected to work with a firm to ensure that your risk was minimal, you will put up a certain percentage of the money, seeing a smaller overall return. Anyone looking for a hard money lender is a default risk, generally because they are taking a huge risk in the purchase of some commercial real estate, in this case in the warehouse district, and cannot get a traditional loan to do so. Quick decisions are part of the nature of such transactions, and hard money lending involves seeing an opportunity, quickly assessing the rick involved, and pulling the proverbial trigger.
The use of hard money loans continues to push smaller businesses while the economy remains in flux. As an individual with capital, you have the option of funding these operations yourself, reaping incredible rates of return, or sharing the risk with a firm or team that will also expect their share of the profits. Either way, it’s your call – how much risk are you willing to take?