To Hard Money Or Not To Hard Money Is The Question

Private Lending & Conventional Mortgage Advice
16yFollow

To Hard Money Or Not To Hard Money Is The Question

Darrel Heard
Real Estate Investor · Upstate, NY · Member since 2010 · 10 posts · 0 votes

I am considering hard money loans, but definitely am not as familiar with that type of financing and from what I do know, may be at a high interest rate and also have to pay the loan back in a short period of time. Any and all information regarding this type of financing or other steps that would enable me to begin my real estate investing, would be greatly appreciated.

0Reply
21 views

Most Popular Reply

Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
16y

I have been a hard money lender for the last 10 years. Hard money should be used only in very specific and limited circumstances. Many real estate investors use hard money as a substitute for conventional financing when conventional financing is not available. This often makes no financial sense and the end result is the investor not accomplishing their goals. Hard money can not be used successfully long term or on investments with average profitability. On these type situations the borrower ends up paying all profitability and then some to the lender.

Private Mortgage Financing Partners, LLC
WebsiteView Page
2Reply
See this reply in the discussion

6 Replies

Jump to latestLatest
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    16y

    I have been a hard money lender for the last 10 years. Hard money should be used only in very specific and limited circumstances. Many real estate investors use hard money as a substitute for conventional financing when conventional financing is not available. This often makes no financial sense and the end result is the investor not accomplishing their goals. Hard money can not be used successfully long term or on investments with average profitability. On these type situations the borrower ends up paying all profitability and then some to the lender.

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
    2Reply
  • Account Closed
    Member since 2010 · 156 posts · 65 votes
    16y

    Tom,

    I'm curious if your already approved for conv financing why do the hml. Do you use the HML because of the time frame in which the funds are available to you to make the deal happen?

    0Reply
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    16y

    Conventional lenders have guidelines about the property quality. They also lend based on purchase price. HMLs will lend on junky properties, and will base the value on the work you propose to do.

    Hard money makes sense for buying junkers, fixing them up and then either selling them or refinancing into a conventional loan.

    An example.

    Property value fixed up (ARV): $100K
    Purchase price: $55K
    Rehab work: $15K
    Conventional max LTV: 75%, based on purchase price
    Max conventional loan: $37,875
    Cash required: $31,125
    HML max LTV: 70%, based on ARV
    Max HML: $70,000
    Cash needed: $0

    Now, that's not exactly true because a HML will have steep points and interest, so you'll have to cover those as well as covering the closing and holding costs. So, realistically, you'll need about $10-11K to do this deal with hard money. You'll have points, closing costs, and holding costs on the conventional loan, too, about $4-5K total. So with a conventional loan you would need about $35K to do this deal, with hard money you can do it would about $10K.

    Terms on hard money are typically 6-12 months. If you can't sell in 6-12 months, you'll be expected to quietly hand over the property.

    Hard money is typically only for investment property, not for a property you're going to occupy.

    2Reply
  • William S
    Member since 2008 · 56 posts · 33 votes
    16y

    HML's obviously has it's uses...

    But why end up potentially paying 12-15% plus 4-6 points and have to have some skin in the game when you can educate yourself on how private mortgage lending works ( NOT the same as HML) If you are in RE for the long haul then not learning how PML works and how to find/educate your own lenders is crazy. Besides that's all HML's do. They find someone happy w/ receiving a nice 7-12% return secured by real estate and broker out that lenders money to other RE investors and collect the spread. You can be the one who finds your own PL's for your own investments.

    Bottom line with HML you are not in control. With PML you are. The caveat/value for the potential PML is an alternative for secured returns backed by real estate purchased at significant discounts (60-70 LTV's.... and depending on your local market, a quick flip or long term hold - lease/option) as an exit.

    Out of all the 1 on 1 presentations I've given, I have only ran into one individual who actually knew what PML was. Once a person understands the program and you present yourself as someone credible then games over.

    People have been sitting on the fence and are ready for something new (in their eyes) where they can recoup some of the losses in the last few years.

    Educate yourself on this subject, research and find someone/course who can show you it works. It's one of those investments you make in yourself that is WELL worth every penny.

    Hope this helps

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free