It seems that every time we pick up a newspaper, we must endure the “doom and gloom” prospects involved in the modern investment realm. While the stock market continues to rise and tumble in a perpetual dance of profit and loss, those with investment capital are searching for new ways to make extra points on their nest egg. As with nearly all investments, however, the potential reward is directly tied to the amount of risk one is willing to take. “Hard money California” searches are at an all-time high, as investors are searching for capital to purchase homes, and homeowners are doing their best to avoid foreclosure. When these elements come together, those with capital to invest into the lending industry can find themselves faced with some pretty optimistic prospects – we call this opportunity!
The Lending Pinch
The banking industry has tightened everything up, making it increasingly difficult for those interested in purchasing property or making property repairs to get funding. Those that “flip” houses, for example, often purchase a home, pour some investment money into it, and then resell it, turning a profit. But, with the current state of economic affairs, there are several “flippers” that are now searching for investment money in an effort to recoup the losses compiling with each passing day. This is why when it comes to hard money lenders, California is one of the booming markets for opportunity. With so much property constantly in flux, those with capital can fill the void left by the lack of lending in the financial sector.
The Rate of Return
Because hard money loans are high-risk on the part of the lenders, the interest rates usually witnessed are higher than the average banking alternative. However, this doesn’t mean that there aren’t thousands of interested borrowers. The average interest rate of one of these loans is about 2-3 points higher than the rates found at a local bank, giving the lender a solid return on the investment amount. While some lenders may elect to take this interest rate a bit higher, it should be noted that the higher the rate, the lower the amount of interested borrowers you will encounter.
Protecting your Capital
Investment capital is always something that we want to protect, which is why the risk that lenders are taking should always be weighed versus the reward. However, the loans do have an element of protection that can help the lender curb some of the risk associated with the endeavor. Because the property is put up as collateral against the loan, which is usually granted for 70% of the property’s value, a default on the part of the borrower results in the foreclosure of the property by the lender. Obviously, no one wants this to occur, but in the event that it does, the lender now owns a property in which they paid 70% of its current market value. This protection is important!
When it comes to hard money loans, California is a hot-bed for investors with capital and a bit of risk-taking in their blood!