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Hard money is a funding device that few investors use, but in today’s competitive market, it could become a valuable tool for expanding price points, and expanding opportunities to buy.
Hard money is a loan that is made through a different set of criteria than traditional bank financing. It is primarily based on the equity that the buyer is putting into the deal, and it is usually not at all compatible with getting bank financing simultaneously. For example, you typically couldn’t buy a property with a bank loan, and then also a hard money loan in a second position.
Hard money is expensive, and that discourages many people from using it. Typically hard money loans have “points” or percentages of the loan as a cost, of 2-4% depending on the lender, borrower, and loan terms. Interest rates vary from 8-12 percent, also depending on various factors. Also, hard money loans usually have minimum terms, and maximum terms.
So how would you use a hard money loan? The most common scenario that we run into, and for which we are now actively recommending hard money for our clients, is in the low price point, cash investor category. For example, someone with $200K in cash trying to buy a property, will run into enormous trouble competing to buy something, but that difficulty is significantly less at $250K, or $300K. Using hard money to elevate to a higher price point allows our investors to obtain properties where otherwise they may currently not be able to. Investors can use the free cash flow to amass savings to pay down the hard money loan when it comes due.
For more information, or referrals to hard money lenders, please email or call me at 310-482-0173.
I would love to find hard money loans with those rates. I have recently been looking at rates around the country and still seeing 5 points, and 15-18 percent.
I do expect those rates to come down as lenders have more money and less opportunity to lend as inventory shrinks
Contact Eli Weinberger at 310-927-2467.
There are many options available to help fund your hard money deals, shop around for the best rates and terms.