Hard Money: When should you use it? What are the major pitfalls?

[Iman Yu]

So I've watched a pretty good presentation on 'hard money' from Rich Club's webinar archive. 

Cal Beran hosted the session and he is from "Longhorn III Investment.'

His examples were clear and his step by step process make sense, too. However, as any newbie would want to know is the 'how's'?

How do you know when it's time to use 'hard money' as an option? 

In other words, I know hard money is a tool that can work for a REI investor and I am sure it's not meant for every deal or every investor out there.

I would like to get a feedback on:

1) what kind of deals makes it a good deal to use hard money for? 

-The criteria to spot such deals should be different than a deal that one would use conventional financing for but what are they?

2) What kind of check list should an investor have when looking at a hard money deal?

-Since the risks are higher in this kind of financing, I am sure it would come with some common pitfalls such as under-estimating repair costs, not knowing the market well, not knowing how to to calculate ARV?

Thanks!

Iman

[Joe Villeneuve]

Analysis.  

HML isn't a loan...it's an expense for rehab/purchase money. There IS a difference. A loan to a FEI should be something they carry, but a HML is the cost of of the money needed to do the rehab. This means, if you have a time overrun...you have a cost overrun during rehab, since the cost of the HML is based on a per month basis.

This is where my initial comment, "analysis", comes into play. Your purchase/rehab analysis must include the cost of the HML in the cost of the rehab.

When to use it? When your analysis shows this is a better option than the alternatives, such as a partner, your own cash, a rehab loan, an LOC from another property, etc...