Hard Money Loans: California Investors?

[Joffrey Long]

Here's my "take" on the market - and my question:

Will hard money continue to get cheaper? We see a continual pattern of huge amounts trust deed investment dollars chasing a smaller number of loans.

Rates in the single digits, costs near as low as what banks charged, and longer term loans. The old "Limbo Dance" comes to mind: "How low can you go?" (If you're too young to remember that, it's probably a good thing.)

Real Estate investors who bought when prices were much lower, (about 18 months ago here in Southern California) are selling/taking profits. Some of that money is chasing trust deed investments as well - driving rates and costs even lower.

Investment property buyers who can't or don't have 3 months to jump through the bank's hoops to try to get their loan are taking advantage of today's lower costs from hard money lenders. People using hard money loans for investment properties are sharp - we've got to have terms that make ssnse.

So my big question(s): Do you see an increase in any of the following? Hard money loans offered at single digit rates, longer terms and lower costs? Trust deed investments offered at lower yields? Or an increase in the use of hard money financing for investment purposes?

(I'm only talking about NON-OWNER occupied properties, not financing someone's residence.)

Look forward to your feedback!

Joffrey Long

P.S. When hearing the mention of "hard money," some feel compelled to mention "loan to own," where a lender merely loans with the hope of foreclosing. Wrong-O ! That's a pretty "1980's" business model - but especially dangerous with 2013's new investor and borrower protection laws.

[Rick H.]

Ok, here are a few more thoughts on the subject:

If you market to niches that you really understand and even sub-niches within the larger categories, you can become the dominant player, irrespectively of your size and relative access to capital.

If you have expertise in solving specific kinds of problems, as a hard money originating lender, you can close faster.

If you actually have you own money (or at least a credit or warehouse line) you can close still faster if you so choose, and outperform other wouldbe competitors.

If you own a loan and you now wish to broker it, flakey note investors' failure to perform won't affect you as much.

If you have good relationships with your competitors, you are less likely to have deals biked from you.

When I was ill during 2009-2010, I referred 100% of my business to my longtime friend and main competitor. I even funded most of those deals with my money! Consequently, we have an incredible trusting relationship that is mutually beneficial. And when something now happens in the marketplace or legislation, I have a sympathetic ear to discuss the potential ramifications.