Hard Money Myths Exposed
In these three articles series we will “debunk” the myths about the hard money industry and we will explore why hard money is a good alternative for investing in real estate. In this article we will start with the most common myths about the hard money industry.
Myth: Hard money loans are so-called because the lenders and their terms are hard to be negotiated with.
The fact is that the nature of this type of investment does indeed require hard qualifications or conditions. The “hard” in hard money actually refers to the difficulty of the project itself. The project is made out of rather hard to finance circumstances. For example, the property is difficult or the conditions of the transaction may be difficult because, the property more likely is in disrepair, so it makes it hard for conventional or traditional financing to take place. Another circumstance is the amount of foreclosure in the area, because of that we can not obtain a positive market valuation. The borrower may even be a difficulty. Every proposal is unique and must be evaluated to discover its own merits. Nevertheless, virtually every project proposal that’s received harbors at least one or more of the following circumstances: money is needed quickly, often within a week; the borrower has little or no cash equity, and cannot raise a sufficient amount or is not willing to sacrifice an equity interest in the project to an equity investor; the borrower has a history of bad or limited credit; the borrower has tried for several months without success to obtain financing; the project itself is problematic or has significant questions, and too many other reason.
Myth: Hard money loans are excessively expensive.
If the loan was easy to obtain or the circumstances where traditional in nature then the borrower will have no problems and be able to find less expensive pricing for the project loan, and chances are that the borrower would likely not have sought hard money to begin with. The pricing quoted by the lender is usually commensurate with the circumstances and the risk involved. Hard money loans are usually a blend of debt and equity risk; priced higher than conventional debt but less than the cost of equity investment.
Hard money loans are actually priced just like any other loan. If a Fortune 500 lender were offering a quote on the same loan, their pricing would be very similar. The difference is that it would not be referred to as “hard money” simply because of the status of the lender. Therefore, a borrower seeking quotes for comparison on a hard money loan will generally find the competitive proposals to be priced very similarly. The final choice, then, should be based on the lender’s reputation and ability to close, the conditions associated with each proposal, and the chemistry between the two parties.
Myth: Hard money lenders are disreputable loan sharks.
The truth is that most of the hard money lending firms are lead by successful investment bankers, real estate brokers, developers, lawyers, accountants and other professionals in the field. These are firms that specialize in financing products that are hard to obtain. Most of these industry leaders are expert in financial products with years of experience and can differentiate between a good deal and a bad one. Savvy borrowers appreciate the fact that a good hard money lender lead them in to more successful approach to investing and will help the borrowers better focus their project searches.
To be successful (profitable) hard money lenders must be capable of both assessing risk and closing loans. They are professional business people who understand the way the system works. They can be tough, but they can be fair as well. A prudent borrower, however, should perform his own research of the investor at an early stage in the relationship in order to minimize or avoid any potential problems.
We understand that finding the right hard money lender may be a challenge, so make sure you are dealing with someone who is licensed and really has the knowledge and ability to close your loan. Mikes Hard Money will provide you with the real estate investment cash you need for your deals getting you closer to your desired lifestyle. When it comes to Hard Money Loans no one but Mike can provide you with CASH in a FLASH!