What is private or hard money?

Question

David Repka · Answer

A hard money lender (HML) is different from a conventional lender because the HML is hyper focused on their basis in the asset and is willing to OWN the asset should the borrower stumble and not be willing or able to pay back interest and or principal. This is why a HML typically caps out leverage at 65-75% of the lesser of cost or value. They want their basis in the asset to be low enough to recover their capital with all interest and fees. A conventional non-recourse lender (insurance company, Agency lender, CMBS, etc.) is focused on the Borrower / Sponsor and their ability to pay the loan from the cash flow generated from the asset. A conventional recourse lender (bank, credit union) is focused on the asset to be acquired and will also underwrite a Sponsor's global cash flow from all sources irrespective of their performance on a particular asset.

JR T. · Answer

@Dan Green Hard money is non traditional commercial financing. They will charge you an outrageous interest rate, points up front etc. Total cost of credit runs 14-22% APR.

Yes, if you have a good enough deal put together you will be able to get a loan from a hard money lender. Sometimes the lender will make more than you did when the dust clears on a project.

Incidentally a HML can be your canary-in-the-coalmine way of detecting a bad deal. You can contact most HMLs and they will underwrite your proposed deal. You're under no obligation to take the financing if they ultimately offer it to you. If they can't get the deal done you now know there is not even enough money in it for the HML to realistically expect recovery of their interest and you should let the transaction go.

Account Closed · Answer

90% LTV in FL if 3 more more flips can be proven for experience.

Jay Hinrichs · Answer

Dan,   Hard money generally is any one or company that advertises for borrowers.  in some states its required that they be NMLS registered and state licensed. there are 12 states that require this on any loan for any purpose on a 1 to 4 unit. 5 and more no license required.

Private money Is when your having your teeth cleaned and you mention to your dentist you have this great RE deal.. and he mentions he has 300k sitting in his Solo 401k or Sidra making 1% and would be happy to partner or lend to you.. Private money is just that folks that are personally known to you.

one thing that is happening that I have noticed in the industry.. because there is a perception that private money is CHEAPER money than Hard money.. Hard Money lenders are advertising that they are private money lenders.. but at the end of the day they will charge the rates that are customary for that market..

Gone is the day of their money and your great deal for any one starting out for beginning.. although its loosening up as we speak.. but generally speaking someone doing their first deal needs to have significant cash equity in the deal to get a HML.

And the whole reason HML work. is there are far and few banks that will do rehab loans.. they will do them for their top teir clients.. by top teir I mean HI wage earners or years of experience with that bank great cash reserve etc etc.. at least the banks I work with in our market in PDX... if you can get a bank loan then your financial houses is in very good order.. your character is impeccable and your capacity to do the deals are not in question.

HOpe this helps you.

ALSO please do not fall for all the scammers on BP who hit you with 5 % rates and quick approvals and just need you to send them 500.00 to get started any up front money from anyone who hits you on line or is advertising is 99% of the time pump and dump due diligence schemes.. and or those that promise to align you with the 2,000 private investors in their data base.. also pipe dreams.

I think one exercise you could do is to check out these three companies.

Lendinghome in SF  they have a great matrix on line and you can see how cheap a guy like me can borrow and how expensive it will be for a new comer.

Lendingone in FLA is legit and local

Lima also legit.

Cogo from what I see makes deals but its arguous process  I only know this because some of my vendors used them for take out and it took forever.. and it was quite expensive.

What is private or hard money?

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