What is hard money?
Many people these days are asking what is hard money? Is it called hard money because it is tough to get? Just the opposite. These types of loans are very easy to get and have the least amount of restrictions. When you goto a bank these days, they ask for everything financially in your life from the past 2-3 years. Weather it is your tax returns, paystubs, credit reports, mortgage history, anything that they think will give them a better handle on who they are lending to.
Taking out a hard money loan in this economy.
When you take the case of a hard money loan, it is just about the opposite. We will look at the property and the strength and potential of the property itself. Many people are asking these days why they can not get their deals funded, or why if they have a small investment property, no one will fund their deal. This comes back to what has transpired in the real estate market the past 3 years. Many hard money lenders work backwards. They assume that everyone is a foreclosure. So with the average cost the past 3 years of a foreclosure being about $28,600, this excludes many small properties from getting loans. How can you possibly lend on a property when you are almost 30k in the hole before you even lend $1 on it. So if the property is $20,000, and you lend $20,000 on the property, you are now $28,000 plus in the hole if the borrower defaults. If this was your personal money, would you take the risk?
Properties hard money lenders will finance.
Probably not, which is why many hard money lenders stay away from the smaller properties to ensure that they do not take a loss on any deal. Its not always about making the loan, but rather, will I get my money back if I do approve the loan. If it is not a clear “yes” to the lender, than why even make the loan in the first place. Have you ever heard the expression “live to fight another day”. Well this is a motto that many of us hard money lenders are living by these days, as we want to ensure that we stay in business. While your property might be a great deal, if the numbers don’t work, it doesn’t really matter how good a deal it is. So my advice to many borrowers is, think about it with your own pocket. If you were at risk from day one, and in a losing situation, would you write the check. Most of the time the answer is no. So stop asking if hard money means is it hard to get, hard money means that the hard asset is the underlying decision on the loan, not the actual borrower themselves.