Availability of Hard Money Loans in a Struggling Economy

[Ryan Aurand]

Hey BP members!

I'm in the early stages of preparing to buy my first single family home. As I start to think about the availability of obtaining hard money loans (and other sources of financing) over the coming years, I can't help but be worried that my options may be more limited in a weakened economy.

What is the relationship between the US economy and the availability of financing (particularly hard money lending) in depressed markets? I'm generally aware that conventional lenders are likely to have tighter guidelines on the types of properties and people they'll lend to, but do the hard money lenders show the same behavior? I'm unsure if hard money lenders would shrivel up or if you actually see an influx of hard money lenders looking for high-return "fixed" income in leu of the declining prices in equities. 

Any guidance here would be greatly appreciated :)

[Jay Hinrichs]

Originally posted by @Joe Villeneuve:

Money is still available...in any market, from both hard and soft lenders.  The cost just goes up.

You do understand that lending money is their business, right?  If you had your own business (any business), and the economy got tough, would you stop doing it?  Probably the exact opposite...you would just charge more.

WEll that's a great question.. it depends.. by that I mean were the HML gets their funding..

Like me I had 30 million dollars worth of LOC with 5 banks that I would use to fund HML in 08 all but one bank called my lines of credit so as loans paid off I had to retire the lines.. which caused me to go down to one last line of credit of 5 mil and our million in cash we needed to tag the line.. let me tell you .. you cannot run a HML company with only 6 million to lend that's a two man company.. so form 18 employees to 2 peeps..

others will raise their money through PPMS.  same thing those will usually have a sunset and investor may or may not put their money back in .. in bad situations you can count on investor freezing up.

then you have wall street they are going to be like banks.. although with the notes that are in force with long maturities they have to honor them.. but may not extend new deals.

There is always some lending and there are certainly small mom and pops with their own cash.. but tight market affects all.. 

that's from my 3 decades of being a HML .. If you have private money they panic and wont put back in Banks call your LOC's and wall street freezes.. this is what happened in 08 to 2011 and why real estate crashed so hard.. financial markets froze.

I mean I was making loans in Detroit on houses that were appraising for 120k in 2002 by 2010 you could buy those same houses for 10 to 20k all day long.. I mean it crashed.