First of all, hard money does not mean that it is difficult to obtain. Rather it is a term that is used as a “non-traditional” means of acquiring money to borrow. Hard Money Lenders are simply private individuals who lend money to Real Estate Investors, normally on a short-term basis (meaning less than 12 months).

They are usually found via word of mouth and your local REIA meeting is the best place to get referrals. Often times hard money lending is not what they “do” as a full time job, it is how they acquire extra cash. HMLs can be anyone. They are real estate agents, personal friends or family members. Some are attorneys, accountants, doctors, and auto mechanics. They can be literally anyone who has money to loan.

The main commonality of HMLs is that they charge significantly higher rates of interest and upfront costs compared to “traditional” lenders. Other than that, lending criteria is flexible and differs as greatly as the people who borrow. Some factors that determine the terms and conditions of a loan might be your relationship with the HML, your real estate investing experience, and the numbers of the actual deal. Some HMLs will loan only purchase money, while others will also loan renovation costs.

Some investors simply will not borrow hard money because they can not justify the thought of the costs involved. (Some people drive an extra 10 miles to save .02 cents on a gallon of gas.) HMLs often charge 5-10 (or more) points. Each point is 1% of the loan amount. And the interest rate that they charge is often over 15%. Plus they will often not lend more than 65% of the after repaired value.

There are several schools of thought in terms of how expensive hard money really is. On one hand it is true that a borrower is paying high up front fees and a high interest rate. That’s the downside. But on the upside, many hard money lenders will look at your deal (the numbers, the neighborhood, etc.) as opposed to your personal cash, credit, job history and financial situation. Second, once you have established a relationship with a hard money lender, they can often provide money in less than 24 hours. An additional consideration is this, if borrower were to bring in a money partner to help finance a deal, that money partner would often get 50% (or more) of the overall profits. A money “partner” would cost even more than borrowing hard money in the first place.

Whether or not to borrow hard money is a personal decision that only you can answer. Again, ask around your Real Estate Investor Associate (REIA) meeting for names and numbers. Often times HMLs will even go to the monthly meetings for the same reason you do, to network and obtain more business contacts. Even if you never end up using hard money, a hard money lender can be a fantastic resource to have on your team.

Author: Chris Parks
Article Source: EzineArticles.com
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