Hard or private money lenders..

3 Replies

What’s everyone’s take on hard or private money lenders use to start? Is it a good idea for some one who doesn’t have much money to start?

Is it more useful for fix and flips or cash flow properties? What do I do about such a high interest rate of I'm holding the property for cash flow long term?

@Marco Morkous If you're doing buy and hold, you'll want to find a distressed property you can add value to, then take out a cash out refinance (usually up to 75% of the after repair value). Use that to repay the short term loan from the private or hard money lender, and now you have a cash flowing property that pays for its own mortgage.

@Marco Morkous

If you are starting out you may have a hard time finding a hard money lender. They will want to asses your ability to execute a project such as a fix and flip with a track record. If you have construction and finance skills with a good support network and a great property for them to evaluate then maybe someone will take a risk on you. Private money, in the sense that you get it from a rich uncle or friend as opposed to a hard money lender may be easier, if you have such people you can borrow from and they trust you with the project and their funds.

As far as how to use hard money...the short answer, most of the time, is it's used for fix and flips so you can sell the property and pay back the high interest loan as quick as possible. Most hard money lenders will be looking at short terms. I will never lend more than 9 months, penalty's and increased rates are built into the contract if a borrower has to extend for a year. Then is foreclosure time.

The high interest rate isn't important. What is important is how good is the deal and will it cover the high interest rate. If you are buying rentals with hard money the idea is you fix them up to increase the value then refinance with a more traditional lender at lower rates. 

Hard money tend to be better for fix and flip. 

Private money is different than hard money. Hard money lenders are professional lenders. Private lenders lend to you because they know and trust you. Private lenders are generally much less expensive and more flexible than hard money lenders. However the hard part is finding someone who will trust you just starting out.