Investment & Hard Money Lender

They say lending is the second-oldest profession, and there has always been someone who has resources that someone else wants. Hard money lenders, or private lenders, have been a mainstay source of funding for real estate investors for decades, and while they sure ain’t cheap, they’re fast and they got the job the done.

High interest rates (10-16%), hefty origination fees (2-8%), low LTV ratios… why would anyone borrow from private lenders? Because they can usually close the loan within one to two weeks, and often won’t hold bad credit against you.

Hard money loans are generally based more on the collateral (the property) than on the borrower/investor. Because of this, the loans tend to have low LTV – a low loan-to-value ratio. This is the percentage of the property’s value that the lender will lend out; a 65% LTV means that if you’re buying a rental unit for $100,000, the lender will only lend you $65,000, and you must come up with the rest as a down payment (plus all the closing costs).

You’ll also need to use the lender’s appraiser, who they know and trust. The appraised value must be at least as high as the purchase price, or you can forget the loan.

The idea of hard money lending is that even if you default on the loan, the rental unit has enough equity that the lender can just as easily foreclose and auction the rental unit off to recover their loan balance. It is sometimes called equity-based lending because of this, and lenders are often less preoccupied with your income and credit because their high-equity collateral offers enough security for lending you money.

Hard money lenders aren’t interested in sob stories or excuses – if you don’t pay them on time, they will charge high late fees, and will immediately begin the foreclosure process. Sound callous? If so, you should probably reconsider whether you’re ready to borrow money for your real estate investments.