up 20 acres on the West Coast but was unable to find a
lender to fund the $1 million purchase price. He called
a hard money lender only a few days before his purchase offer was set to expire. The lender liked the land
and made the loan within the two-day window. Kent
sold that land 30 days later for $2 million. Remember,
hard money used the right way works out for all parties.
There also are some hard money lenders who play
the loan-to-own game. In other words, the lender
makes the loan hoping to later foreclose and own
the property serving as collateral. Every hard money
lender is prepared to foreclose to protect their financial interests, but some make that loan with the goal
of taking over the property.
Although it can be very profitable for the lender, the
loan-to-own approach is a morally gray area — and, in
some scenarios, it can even cross legal lines. Because
of this, as a commercial mortgage broker or borrower,
it’s very important to make sure the loan deal makes
economic sense. If a borrower can’t pay back the loan,
don’t take it out.
Hard money perks
Without a doubt, many borrowers need money quick-
ly, whether it’s because of an expiring deadline, a
looming foreclosure or a great business opportunity
that needs to be closed fast. A typical bank loan can
take any where from 30 days to six months to close and
a borrower may get rejected at the finish line. Speed
lender can provide to the borrower is creativity. Hard
money lending is a vehicle for originating loans that
fall outside the boundaries for a typical commercial
mortgage loan. Hard money loans can involve no
money down, owner-provided financing in second
positions, judgements acquired at discounts and re-
leased as part of a loan process, and more.
Some hard money lenders will even negotiate
with the Internal Revenue Service to get loans done.
Would banks do that? No, but they don’t need to. The
experienced hard money lender is like a rugby player
who has the freedom to play multiple positions in the
game of finance. n
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Poor credit • High LTV • Stated income • Options to choose from
SFR business purpose loans • Fix Flip • Bridge loans
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Our construction draw turnarounds are the fastest around.
in closing, however, is probably the greatest benefit a
hard money lender can offer a borrower.
On another front, banks require a borrower to
have good credit, cash reserves and a proven history
of income. Banks are bound by federal regulations
to lend based on these factors, and it’s sometimes
hard for banks to overcome a borrower’s shortcoming
in even one of these areas.
Hard money lenders, by contrast, look at credit, cash
reserves and income to some degree, but most often
make loans despite deficiencies in these three areas.
Their focus is on a fourth piece of the pie: equity. The
amount of equity a borrower brings to the deal — including the equity in property used to secure the deal
— is the main ingredient of the hard money loan. As
a broker, if your client has the equity, they most likely
can get a loan.
“Without a doubt, many borrowers need
money quickly, whether it’s because of
an expiring deadline, a looming foreclosure
or a great business opportunity.”
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