Is hard money a myth?

Question

So we hit a snag on our last round of financing and are looking to buy some time and comfort with a hard money loan. I am making calls and having conversations and these pretty much feel like regular loans but with crappy rates. All the stuff I see required to regular financing appears here, all the paperwork and apps, appraisals, etc... Am I grossly confused about what hard money is? Or am I talking to traditional lenders who are just cross marketing into the hard money space?

Jay Hinrichs · Answer

@John Thedford this is one of the main stumbling blocks for borrowers who think points and rates need to move exponentially down with the size of the loan.so when a lender advertises 2 and 12 lets say. 2 points on 400k is 8k you can make money doing that2 points on 30k tiny loan is 600.... I wont walk over and get a cup of coffee for 600.00 .. one would go BROKE running a company and bringing in that low of dollar amount.. could never pay for staff.what the public does not realize is HML generally are paying someone for their capital.Like me I had big LOC with my banks 25 million worth... I paid a point per year and 6% interest.So if I lend out at 2 points one point is gone to my money source... and I will make money on the delta 6% per year... but with tiny loans its such small money you simply cant make it workNow one nice thing about the market is that conventional banks have stepped into financing lower value rentals again.. IE doing sub 75k loans for buy and hold. I get taken out of most of my deals this way.. I see the huds.. even the conventional banks that are doing say a 40k loan when you look at all the charges on the settelement statement it comes to 4 to 5k to the bank.. IE a few points and then 4k worth of junk fee's its the ONLY way they can make this stuff profitable.. And for a HML to lend 80% in what in TN would be basically the rough hoody type areas to an out of state investor.. that would be suicide for them.. WAY too risky.. as a HML in that scenario I personally would only go 50% LTC on hoody type low value assets if that. most of the time I would redline and tell them no way out of hand... too dangerous for them and way too dangerous for me.the real value of the assets is only what the wholesale value is.. IE when the home gets stripped what will a wholesaler sell it for again.. one needs to remember its vicious circle in these value assets if we are talking Memphis under 50k.

Jay Hinrichs · Answer

Jackson... first off if your borrowing in TN 99% of HML you will call are NOT licensed to lend in TN it takes a very special state license to lend there.. and now the reality comes to play your looking for tiny loans... many could just be blowing you off because they don't want to do tiny loans.. there is NO MONEY in tiny loans..keep in mind a HML of any repute @Ann Bellamy@Jason Hirko needs to make 5k minimum in the door per file other wise it simply is not worth their time.. combination of you being out of state tiny loans and in a state that if a HML is going to be legal needs special licensing is what your running up against.Jason your rehabs don't have foundation issues do they LOL every deal I ever did in Texas has foundation issues.. the go to HML company in TN is Bridge Financing in Memphis call those boys.. but expect to pay at least 5k per file.. I personally specialize in tiny loans.. but I have a different program.. and I do a bunch of them to make up for small revenue per file IE 5k per file we like to close 20 to 30 a month.

Chris Mason · Answer

I am not a hard money lender.Many vanilla/simple scenarios, maybe about 20% of them, we do not actually need personal tax returns. That's for Fannie 30YF.But guess what? People that try try to negotiate on the basis of providing less paperwork are historically not a good use of time (it's also not a good use of their time, as they aren't truly emotionally ready to get a mortgage), so everyone's sending me tax returns, period, and I'll submit (or not) as/if needed. And I'm not the only one - we don't have 20% of homeowners running around saying that they got an Agency 30YF mortgage without having to give their lender personal tax returns, right? I wouldn't be at all surprised if the HML guys ask for everything, and then throw 80%+ of it in the trash before submitting the package to underwriting. No way to know which stuff to include or not include in the package until all of it is in hand. Especially if it's brokered hard money, where you need to shop various end-lenders with various differing criteria.

Chris Mason · Answer

Haha, just gotta point this out...

Jason Hirko · Answer

I believe so. As Chris said, when someone doesn't want to give tax returns, bank statement, etc., that takes them 2 minutes to pull off their computer, it is usually a sign that the information contained within isn't exactly glowing. And as for appraisals, they take a week. I have never lost a deal because I needed 5 days to close. The value in hard money is lending on properties that banks won't touch in timeframes that banks aren't interested in, and for people who don't generally meet traditional lending criteria (see: no W-2). The people I lend to are self employed investors, buying houses that need roofs and foundations and everything else, and need to close it in 2 weeks. I don't have to complete with Wells Fargo for his business.

Mindy Jensen · Answer

@Jay Hinrichs, I'll get you coffee for $600...

John Thedford · Answer

@Jackson LongSorry I do not lend out of state and do not lend less than 50K. The returns are too small.

Jay Hinrichs · Answer

@Jason Hirko you would need a mountain to have a slope :)

Jason Hirko · Answer

Nope. I thought they just poured slabs on a slope around here?!?!

Jackson Long · Answer

nods. Good info.I was unclear though. I'd like to borrow 300-400k. There are about 11 assets in this first grouping.