Why Should I Use Hard Money Lending

Question

I am a dentist in North West IL. I currently have 7 Locations and we own 4 of the properties where our dental offices reside. We pay ourselves rent from these locations, which assures us a profitable return. I placed our company (Shady Oak Holdings LLC) 100% in my wife's name to assure that she has income in case the unfortunate would happen to me. Shady Oak Holdings LLC also owns a single family residence and an apartment above one of our locations.

We are looking to expand into real estate investment using rental properties as well as the BRRR method. We are in a rural community where rehabs can be found very inexpensively.

I dislike banks as we purchase a ton of equipment and my credit is constantly getting checked and I am interested in information regarding hard money lending as an alternative.

I would greatly appreciate any feedback from anyone that has experience with hard money lending.

Best Regards,

Scott Bares DDS

Kerry Boyle · Answer

Yes, you are missing something. Hard-money loans are not amortizing. You owe 100k throughout the term and make $1,000/mo payments until you can pay off the $100,000.

You also don't (typically) get an escrow for taxes and insurance - investors typically pay that off when they close, or when they come due to avoid penalties.

editing for calculation - Loan Amount x Interest Rate/12 = monthly payments. Much easier to calculate than an Amort loan.

Jay Hinrichs · Answer

I have to think based on your explanation of your business. your wife should be able to walk into your local community bank and pull an unsecured LOC.

I know in our market here in Oregon  the small commercial banks fight to get dental practices business.

Kerry Boyle · Answer

This is only correct if you take the entire year to complete your project, take 3 months and it only cost you $3,000. Speed is an important factor. Points aren't included in this calculation, as points are paid at closing, but are a simple percentage of the loan amount.

No worries, it is hard to get out of the mindset of how residential mortgages work and into hard-money loans (which are typically commercial loans).

Caleb Jordan · Answer

If you are in rural area first thing is to find lenders who will do rural. Many don't. Then if everything is low cost, sub 75 or 50k you will have to find a lender willing to go that low. Most don't.

I would look into not just hard money but commercial as well. They can lend to the LLC.

Best thing to do is start calling hard money lenders in your state and find the ones who lend outside major metro areas and at lower loan amounts. Those two criteria will significantly narrow down your pool of available lenders and from there you can figure which options are best.

Kelly DeWinter · Answer

Hard money is the most costly option 12% plus on interest, squeeze and other costs, and most HML want input on rehab projects. Also HML generally  look for short term turn around 3-6 months , they like to get in and get out. I would talk to a lender about getting a HELOC on your properties and using your own equity to buy.

Uneeq Khan · Answer

@Kerry Boyle

I'm usually good at math so I'm not understanding why I'm having such brain farts with this.

So for 100k HML with 12% over 1 year. I pay $1000/month for 1 year and then pay off the total $100k as well, totaling $112k during that 1 year.

Is this correct?

Uneeq Khan · Answer

@Kerry Boyle

Is there a calculator to calculate monthly payments on a HML? I imagine payments could be over 10k a month for 100k loan over a 1 year period with 12%. Just doesn't sound reasonable.  Or am I missing something?

Scott Bares · Answer

Thank you to all for replying... Very Helpful!

Kerry Boyle · Answer

Look for local hard-money lenders. They are the only ones who may not care about pulling your credit. Don't expect low rates with the guys who don't care about credit either...

You may want to use hard-money as an easy way to come up with the capital to finance the first BR of your BRRRR strategy.

Talk to lenders and see if it makes sense.

Joel Thompson · Answer

I'd echo Caleb's advice. You may find that multifamily is a good fit, depending on your personal goals.

Additionally, owner financing could be a more viable option. It may take more work on the front end, but you can set yourself up with some excellent long term flexibility.

Why Should I Use Hard Money Lending

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