"Hard Money" is the new "Smart Money"

January 15, 2013 12:10

Have you heard the saying that 50 is the new 40?  These expressions always make me laugh.

I am giving this blog post the title Hard Money is new Smart Money because in the past year, I have been involved in a few transactions that have involved Hard Money, and they have been very successful both for the borrower and the lender.

One of the transactions was an investor purchase of a bank owned property that was not financeable in its "fixer" condition.  My client purchased the property with a Hard Money loan, she hired a contractor to make the repairs and she sold the property for a profit in short order.

Another one of my clients purchased a tear down house using Hard Money.  He tore down the house and re-activated 2 tax lots that were associated with the property.  He paid off the hard money loan when he was able to re-sell the lots.

Hard Money by definition is a high interest loan with points.  In our local Portland Real Estate Market, hard money rates are about 12% per year with 2 to 4 points paid upfront. For example, if a borrower wanted to borrow $100,000 for one year, he would pay 3,000 upfront and 1,000 per month in interest.  He would pay $15,000 for the loan over the period of one year.

Borrowers typically use hard money for short term financing because banks are not interested lending on these projects.  From the point of view of the lender, either an individual or a group of people with cash, Hard Money loans are very profitable and 100% secured by real estate.

Hard Money lenders can expect to make 12 to 18% per year on their investments, and their investment is backed by the underlying real estate.  In most cases their is a note and trust deed associated with the transaction, so if the buyer defaults, the seller is able to take back the property.

From the point of view of the borrower, Hard Money is the only way to finance certain transactions. 

Hard Money loans can be a win/win situation, and this is why Hard Money is the new Smart Money.

If you have any questions about Hard Money or being a Hard Money Lender, please let me know.