Hard money lenders are specific asset-based loans based upon the value of a property today such as an 80 unit multifamily apartment or some other type of commercial real estate, and are expensive because of the inherent high risk of the loan. There is very little income documentation required on a hard money loan although, the more information that is available, the better chances you have of being approved.
These hard lenders step in during a time of need and give you a quick answer and get you to the closing table fast. The shorter the duration of your hard money loan, the better for you and the lender. If you can get everything accomplished within a six-month period of time, make the money you expected when you initially invested in the deal. Done properly, it can be a win-win situation for both the hard money lender and you!
Hard lenders are not found in your typical neighborhood banks. The interest rates are much higher than your local bank: 15 to 17% is usual although, rates can be as high as 20 to 25%. The reason you ask? Hard money lenders usually lend for a short period of time and they lend it to people who are in financial distress or for those who are approaching bankruptcy or foreclosure. Or some other examples might include: The property may not be completely constructed, the retail or office space not leased or you may not have the necessary permits in place and your existing note is coming due. Let’s face it the interest may be high but, you won’t need the use of a more expensive partner.
For the most part, hard money lenders do not care about your personal credit history. Nor do they care about your employment or past bankruptcies. The property you have is what secures you the loan. Do not plan on getting 100% financing from hard money lenders. On average you’ll get approximately 60 to 75% of the value of your property and most all like to see you have some money into the project.
Expect closing points too – 1 to 10 points depending on the lender you choose. It is suggested you talk to several hard money lenders before making a decision. Ask as many questions as you can regarding their background and experience in the field.
Most hard lenders are private investors, such as hedge funds, private equity groups, or deep pocketed individuals. So, where can you find these hard money lenders? If you don’t personally know anyone, the internet is a good place to start. Simply go to your favorite search engine and type the words “direct lenders” and if you really wanted to get specific insert the words that accurately describe your piece of collateral. moneylender sg