Hard money is too expensive

Hard Money Myth #3

Hard money is too expensive.

The reality:

Hard money is likely going to be more expensive than that advertized by traditional lenders, i.e. a bank.  However, bank financing may not be an option, for any of the following reasons:

1.  A quick funding date may be impossible for a bank to meet.

2.  A rental property may have just recently been leased and is not adequately seasoned.

3.  The property condition may preclude bank financing and the borrower intends to rehab and resell quickly.

4.   The borrower is self-employed and has difficulty documenting his income.

Hard money is not the expensive option if it is the only option.

Finally, hard money is not too expensive if a borrower can use the funds to take advantage of a deep discount off the property purchase price for a fast close or to buy out a partner who needs quick cash.

The cost of borrowed capital is only one of the factors to consider.   Liquidity, speed and other factors play into the equation.  An equity partner will almost certainly be more expensive than borrowing hard money.  And the quicker you exit a project, the less expensive the hard money, where an equity partner will typically take the same percentage regardless of the time frame.