Why is Hard Money Called "Hard" Money?

Question

Most people think that hard money loans are referred to as such because they are loans you can get under circumstances when it’s “hard” to get a loan. But a hard money loan actually gets its name because the collateral for this loan is a “hard” asset. A hard asset is any “tangible, physical item of value,” that can be seen, touched, and quickly resold.

These days, there is a hard money lender on every corner. Particularly in California, where many new hard money lenders popped up in response to the credit crunch of 2008-2009. In your search for hard money, be cautious about who you deal with, and never give an upfront fee with the promise of a loan unless you verify first that a lender or broker is truly legitimate. Every week we hear about some new scam in hard money lending, so be careful. Look for a dedicated hard money BROKER who has multiple sources, not just one source. A good broker can create multiple options for you, and knows the real lenders from the ones who are just playing the game for an upfront fee.

If you are new to hard money loans, take a moment to read our blog called, ‘Hard Money 101’: http://privatemoneyutah.com/hard-money-101/

Posted by Corey Curwick Dutton

Account Closed · Answer

It's called hard money because it's hardly worth paying for.

I've used a lot of it to my advantage, paying as much as 5 points and 18% back in the pre Bubble days. Things are way better now.  10% is the max, and I've paid no points or minimal points. Only really good deals without cheaper/easier options warrant hard money.

Karen Margrave · Answer

@Jay Hinrichs  I see you are a developer, do you have any good sources for private HML's in California that will do construction loans on projects such as SFR, Duplex, multi use, etc.?  We usually pay 4 points and 12-14%. for 12-14 mos.

@Corey Dutton  Though there are hard money lenders on every corner, in reality there are few hard money lenders that are really good at what they do, (especially when it comes to construction loans), and quite often they have criteria that is no different than a conventional lender, while wanting to charge outrageous points and interest, so it wittles the number of lenders down quickly. Also, on fix/flips, etc. especially in California, the margins just aren't big enough to handle hard money.

Jay Hinrichs · Answer

@Dev Horn    Dev Great point.. my critera when doing hard money and this was from 2003 was and is   680   If in oregon  700 if buying out of state passive cash flow home... 2 years tax returns and cash reserves  although WE blew it prior to 08 on the reserve side.. See my post of Turn key demystified we thought the cash out the borrowers would go to reserves but no it went to helping the economy by buying trips cars jets skis anything but were it should have gone.

Plus we required PG's and still do.. At least any HML who wants to stay in business....

Account Closed · Answer

Most states?  I'd say there are hard money lenders in every county with large enough populations to make it worthwhile.  Some lend nationally, but the vast majority are local and you would never know who they are unless you are in the biz. This is especially true now as many of them have stopped advertising to the public since they stopped doing consumer loans.. Money lending on RE is as old as the hills. If you look at as much recorded data as I do you begin to see how certain kinds of deals get done.  There's a lot of hard money behind rehabs and construction projects and distressed property purchases.  Even experienced investors with good credit and capital want to use leverage for projects that banks don't/won't loan on.

Dev Horn · Answer

I think there is one big thing about "hard money" lending that most people don't realize - it is NOT as easy to get as the gurus would have you believe.  Even though it is based upon the hard asset - the real estate - these lenders still require the borrower to be credit-worthy.  Many require a 680+ credit score and cash-on-hand (liquidity) of $25K or more.  So don't think it is the solution if you have "no money and no credit".

All that said, if HM can put you in a deal that you would otherwise not do, and you stand to make money on the deal even after the added costs of the HM loan, then why not use it?

Also, they are not all in Utah =)  There are HM lenders in most states and plenty here in Texas - companies such as Sherman Bridge in Dallas... (Disclaimer: I am not associated with them or compensated by them in any way...)

Jay Hinrichs · Answer

Marvin,

I personally think any up front fee is a red flag.. except for maybe a credit pull and an appraisal.  especially for big deals. there is a company in PHX can t recall there name they advertise they will do 1 mil to 200 mill.. Guys with no money to pull off a 10 mil deal will call them.. they will give some bs and have you send in what you have only to tell you your are preliminarily approved but its 10k for DD or 20k or whatever and they fund very very few deals if any and live off the othe DD money its a JOKE>

Jay Hinrichs · Answer

The reason everyone and their brother is a hard money lender in CA. is because they got sick of being landlords. I was at FBI meeting in Redonodo last year about 45 investors when they each got up to introduce themselves they said and oh by the way I loan hard money.. so they are lending their own money.. not necessarily a company... Norris has a really nice 8 year product at I think 7 to 9 % for those that want to hold CA rentals. And can t get bank financing.

hard money in the mid west and east coast is still 20 to 25% APR.. Unless of course its lazy money or someone you know.. And you can pay those rates if your flipping 30 to 60k houses and quickly % profit is much higher in those markets than the west coast by and large.  I fund a number of turn key operators that make 20 to 30% net margins on their deals and cost of capital even paying me my hard money rates they still make a very nice spread and they do volume.

Here in Portland hard money is 4 and 14 for 9 months.. 2 and 12 for 90 days ( that is what I charged locally) 1 point 18th.. etc etc.  State of Oregon cracked down on individuals making hard money loans. You can only make 4 a year other wise you need to be NMLS licensed or use a broker.. this is on any loan that is on or originated in Oregon.. property can be anywhere in the country if you originate in Oregon you need to be NMLS licensed.. this is for 1 to 4 units. 5 and over commercial and new construction is exempt.

We also have useray for any loans on sfr's that are 50k an under. I personally went inactive with my NMLS license in Aug. And operate now out of a state that does not interpret the safe act in this manner.. But I keep the license if I ever need to activate I don't need to go through all testing etc....

Jay Hinrichs · Answer

The reason everyone and their brother is a hard money lender in CA. is because they got sick of being landlords. I was at FBI meeting in Redonodo last year about 45 investors when they each got up to introduce themselves they said and oh by the way I loan hard money.. so they are lending their own money.. not necessarily a company... Norris has a really nice 8 year product at I think 7 to 9 % for those that want to hold CA rentals. And can t get bank financing.

hard money in the mid west and east coast is still 20 to 25% APR.. Unless of course its lazy money or someone you know.. And you can pay those rates if your flipping 30 to 60k houses and quickly % profit is much higher in those markets than the west coast by and large.  I fund a number of turn key operators that make 20 to 30% net margins on their deals and cost of capital even paying me my hard money rates they still make a very nice spread and they do volume.

Here in Portland hard money is 4 and 14 for 9 months.. 2 and 12 for 90 days ( that is what I charged locally) 1 point 18th.. etc etc.  State of Oregon cracked down on individuals making hard money loans. You can only make 4 a year other wise you need to be NMLS licensed or use a broker.. this is on any loan that is on or originated in Oregon.. property can be anywhere in the country if you originate in Oregon you need to be NMLS licensed.. this is for 1 to 4 units. 5 and over commercial and new construction is exempt.

We also have useray for any loans on sfr's that are 50k an under. I personally went inactive with my NMLS license in Aug. And operate now out of a state that does not interpret the safe act in this manner.. But I keep the license if I ever need to activate I don't need to go through all testing etc....

Why is Hard Money Called "Hard" Money?

Most Popular Reply