Real Estate Investing: Busting Hard Money Myths

Today we are going to be busting the hard money myths!. While there are a lot of people who question hard money, it is still considered to be common sense lending. To clarify, common sense lending is a form of lending that does not focus on the same things that traditional lenders do. Instead, all hard money lenders are looking for a good return. Hard money lenders are not the loan sharks that many people make them out to be. Let’s dive in and explore some of the hard money myths that are bustling around the real estate community.

What will hard money lenders focus on?

Hard money lenders are able to do things that traditional lenders can’t. First and foremost, hard money lenders are not concerned with an investor’s credit scores or income. Their main concern is what the income of the property will be. Traditional lenders on the other hand, will be requesting your income verification from the past two years. Another big difference between hard money lending and traditional lending is that hard money lenders will look at the properties ARV instead of the amount that you are buying it for. To clarify, ARV stands for the after repair value of the property. 

Hard money lenders are taking a big risk, they must be taking more.

Since hard money lenders follow different criteria than traditional lenders, it leads many to assume that hard money lenders are taking more. For example, banks right now are charging between 8.5% and 10% on their short term or bridge loans. Hard money loans however are between 10% and 11%. In taking a closer look at origination fees, banks are at 1% or 1 point, whereas hard money can be anywhere between 1.5% to 2.5%. To clarify, a point is the amount that you pay the lender for their services. On a $200K loan at 1% you would pay $2,000. However at 2% you would then owe $4,000 in origination fees.  So while hard money lenders do charge more, they have less restrictions that could prevent you from getting the money you need for your investment.

We don’t want your property! We just want a good return.

While there are good lenders and bad lenders, the majority of hard money lenders just want a return. The last thing that we want is your property, because we would have to fix it up and sell it in order to get our money back. However, on rare occasions we do have to take back the property if investors don’t pay for 6 to 9 months. Unlike banks, hard money lenders are typically real people lending their money. This might be money from their savings or even their retirement plans that they are investing for a better return. They want a return so that they can live the life that they want, and give you the money you need to live the life you want by real estate investing.

Time is money!

Here at Hard Money Mike we have the ability to help more people than traditional lenders, as long as the loan makes sense. If the investor has a good property we won’t have to take 3 to 4 weeks to decide whether or not we will do the loan. Instead, we would be able to close the deal quickly without having to deal with the hassle. Another thing to keep in mind is how long it takes to get the money you need. We give you your money at closing so that you won’t have to wait for the first draw. Don’t wait! Make things faster and easier today by getting a hard money loan! 

Hard money will cost you less in the end!

While there is a slightly higher cost when using a hard money lender, they are able to finance more than traditional lenders can. The speed allows you to get you into a deal quickly by getting you your money quickly, and in turn allows you to finish your project in a timely manner. Remember, if you pay your contractors on time, they will continue to work on your projects and complete them within your timeline..

Which lender is best for you?

There is a use for both a hard money lender, as well as a traditional lender. Banks are a great source for investors who have time, money, experience, and two years of income. By using traditional lenders you would not only be able to save a little money, but you would also have a longer period for repayment. A hard money lender on the other hand is best for quick deals. They also lend based off of the ARV, so you would be able to get more money for your project. Which is best for you? Contact us today to find out more!   

We are here for you!

Do you have a project in mind that you need to price out? We would love to run through the numbers with you and see if the deal will work for your needs. Are there any hard money myths that need busting? Give us a call!

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