We hear more and more about “hard money.” What is it, and what makes it so “hard?” Hard money is a term for a loan product offered by private companies instead of the banks. The term “hard” comes from the fact that it is secured by a hard asset. It is also referred to as “Private Money,” “Real Estate Private Lending,” and “Bridge Money.” Usually the capital comes from private Investors that live locally to where the loans are being made. Although the loan process is similar to a bank, there are distinct differences. First let’s compare bank money with that from Real Estate Private Money Lenders:
| Bank Money Drawbacks | Bank Money Benefits |
| Hard to get | Low interest rates: 4-6% |
| Takes a long time (45-60 days) | Low Closing Costs: 1-2% of loan amount |
| Minimum Credit Scores Imposed | Long Term: Up to 40 years |
| Property must be in good condition | Small down payment: As little as 3% |
| Only 4-6 loans per person | Available Nationwide |
| Personal Guarantee is required | Money is always available |
| Borrower cannot be a company |
Hard Money Drawbacks |
Hard Money Benefits |
| High interest rates: 9-15% | Easier to get and to qualify |
| High closing costs: 4-8% of loan amount | Quicker to close: 15-30 days |
| Short Term: 12-60 months | Credit not as big of a factor |
| Limited Area: Only lend locally | Borrower Can be a company: LLC, Corp |
| High down payment: Up to 40% down | Personal guarantee not required |
| Property can be in any condition | |
Why use Hard Money?
Most borrowers who use hard money do it for the following reasons:
- They personally cannot qualify or the real estate does not qualify for a regular bank loan.
- They do not have time to wait for a bank loan to be approved.
- They want to borrow money with a business entity and/or do not want to personally guarantee a loan.
Even though the rates can be high, hard money can be quite useful when an investor has an opportunity to buy a property for a low price and sell it for a profit. Simply put, hard money even with its drawbacks can be a great tool in providing the capital necessary to facilitate a Real Estate Investor.
How do I find Private Money Lenders and get a Hard Money Loan?
Please review the real estate Private Lending section of www.invesdoor.com where you can learn more about the process and get your hard money questions answered. With the opportunities that today’s market affords, it pays to know all of your options so that you ultimately can get the deal done!
Contributed by:
Russell Roesner,Financial Director Invesdoor™