Hard Money Lending

5 Replies

When looking to acquire funding sources for residential rehabs, would obtaining a commercial hard money loan be suitable for this type of endeavor?

Lisa, that depends on many things. Rate of Return, amount borrowed, ROI, and amount of time needed doing the rehab(s). Just starting out sometimes hard money loans are the only options. But I also found working with seasoned real estate agents may be able to turn you on to bankers they have worked with before, and have gained trust with. You can still get good deals, and most of the time doing research will be a lot more benificial than the interest rates the sharks will require. Good Luck

@Lisa Holloway To be able to pay the points and higher interest on hard money, a project has to be extremely profitable, and they're hard to find.

Is there a difference between residential hard money and commercial?

Hard money is an equity-based financial product primarily designed to get a borrower through a relatively short period of time.

When I started in the hard money business, it was possible to find 80% LTV 2nd's for SFR's in the So Cal area although the typical product averaged 65%. In those days it was possible for a consumer borrower to get a loan in their principal residence based on equity alone, but obviously the lending world has changed a great deal since then.

Lending on commercial income property (apartment units, office and industrial buildings, strip malls, etc.) is an active market for hard money lenders. Besides house Rehabbers, this is one of the few markets left for them.

I tend to think of most hard money commercial loans as being 50 - 70% LTV short-term, average 1-2 years, 9-15% interest only rates, 3-10 points.

For the investor, this might be the only option, especially on rougher projects and those with short deadlines. When I started buying foreclosure, I actually used credit cards, paying 18%+ rates and still made a profit. Obviously, using expensive money, from any source, will cut into your profits and maybe even prevent them.

Hard money has it's place. One of the big limitations for the investor that ought to be factored is the low, loan-to-value ratios as well as the net proceeds after costs. Most HML's expect their borrower to have some skin in the game.

I would suggest that hard money makes sense when you need to tie up a property however I'd have a plan in place to either replace it or pay it off with other funds, perhaps even walking a private carry-back mortgage.

Thank you everyone! This is all good to know information!

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