There are as many investment needs out there as there are investors. Each person has his own financial goals and his own risk tolerance. In many cases, traditional lending institutions do not recognize these needs and try to cram an investor into one of their prepackaged deals or worse yet, will not even consider lending funds on a particular project. When this happens, the experienced investor looks to other sources of capital – typically “hard money.” Here's why:
Hard money loans are made by individuals who actually own the money. They do not have to report to loan approval boards or stockholders. In short, they can make any deal on any terms that they like. Of course, they are interested in safeguarding their investment so they will typically charge a higher interest rate on riskier investments, but no more so than a regular bank if you can get them to do the deal at all.
Hard money loans offer the exact same safeguards as traditional mortgages. A contract memorializes the deal and allows legal recourse for both the borrower and the lender. Similarly, there is an inspection and appraisal process so that everyone knows the value of the underlying asset. Lastly, most hard money loans are made at a relatively low loan to asset value (usually 70% or less). This last fact is especially important to the lender as it means that he can recoup his investment fairly easily if the borrower defaults.
While many of the typical fees associated with a traditional loan are also present in a hard money loan, there are a few (such as the banks origination fee and “points”) that can be more cost-effective with a hard money lender. In overall terms, this fact means that short-term, hard money loans can be even more competitive and cost-efficient than ones from traditional lending institutions.
Where Do You Find Hard Money Loans?
It’s possible that you may already know friends, family, or networking contacts that can personally loan you money for your next real estate investment. However, if you do not, and you need a hard money loan, there are companies – hard money lenders – who offer a platform where deals, investors, and borrowers are brought together in one reputable and secure place. Consider using one the next time you need a quick and easy real estate loan.