Hard Money Loans Affected by Potential Market Crash

11 Replies

I think any crash is going to affect the lending market, however, most hard money lenders like to see more than one exit strategy. If you have your numbers right, and they verify those numbers, I believe they would still lend. The problem may be on the back end when you try to refinance. Still, if you buy right and the numbers make sense, I don't think it will affect hard money as much as other methods of lending.

Originally posted by @Joshua Schmidt :

I think any crash is going to affect the lending market, however, most hard money lenders like to see more than one exit strategy. If you have your numbers right, and they verify those numbers, I believe they would still lend. The problem may be on the back end when you try to refinance. Still, if you buy right and the numbers make sense, I don't think it will affect hard money as much as other methods of lending.

Thanks for your insight!  By refinance, you mean if I am buying and holding? Does the same go for fix and flips?

Financing dries up in a crash.

Even in March when this all started, many stop lending...some even closed down.

@Daujenae Harps many lenders stopped lending in March and April. Most came back through June through August. Few remained lending throughout. As mentioned previously, if you have a strong deal, you should always be able to find the money to fund it. There’s a ton of money out there right now and even with a “crash” , these people and companies will still have a ton of money to get a yield on. It will just be a more conservative yield, until things look better. Hope this helps. Good luck !

Originally posted by @Daujenae Harps :
Originally posted by @Joshua Schmidt:

I think any crash is going to affect the lending market, however, most hard money lenders like to see more than one exit strategy. If you have your numbers right, and they verify those numbers, I believe they would still lend. The problem may be on the back end when you try to refinance. Still, if you buy right and the numbers make sense, I don't think it will affect hard money as much as other methods of lending.

Thanks for your insight!  By refinance, you mean if I am buying and holding? Does the same go for fix and flips?

 

You would typically only need to refi if you plan on holding the property for a while.  Any fix and flip hopefully should be re-sold before the need for a refinance.

As @Ben Stoodley referenced, a lot of lenders hit pause at the end of March.  The lenders that hit pause were backed by Institutional money and sold their loans on the secondary market.  These large capital providers also extended their loan options to smaller lenders in the form of "Correspondent Programs."  All these small "lenders" of course hit pause as well since they were not really making the credit decision and were all backed by the same money.  The secondary market stopped buying of which I think showed their cards on what will happen if there is another market shock.  With that being said, there was still liquidity in the market place with your traditional private lending companies still writing loans.  The loans being written just were not as reckless as some of the loans being written by the big money chasing yield.  There is just a lot of money chasing yield yet again but history does tend to repeat itself.

If you are looking to start out by using a hard money lender, I would strongly encourage you to find a mentor to help you..... these are not normal times and HMLs cost $$ .... (nothing against them :)) and right now is probably a good time to be cautious and stay as conservative as possible. Be sure to have 6 months of reserves set aside etc.

also, can you purchase using normal financing for a property that need a small amount of reno?....  I just hate to see new folks dive in head first into the risky business of renovating and using HMLs....   they are useful, but be sure you have your ducks in a row......

Originally posted by @Ben Stoodley :

@Daujenae Harps many lenders stopped lending in March and April. Most came back through June through August. Few remained lending throughout. As mentioned previously, if you have a strong deal, you should always be able to find the money to fund it. There’s a ton of money out there right now and even with a “crash” , these people and companies will still have a ton of money to get a yield on. It will just be a more conservative yield, until things look better. Hope this helps. Good luck !

Yeah, I was general in my answer...there is ALWAYS financing out there with a good deal, but you might have to dig more for it. It's not necessarily sitting on a website of a HML.

There is a lot of hedge fund money looking for a place to park...but you need to find connections to them to get in. That comes from just A LOT of networking...and luck. 

----

As @Mary M stated too...HML is still out there, but I've noticed (at least in Atlanta) their rates have stayed steady, but their points have skyrocketed.

Some used to be 1-2...now it's 3-4 points upfront.