Hard Money Lender 101

[Mario L.]

Hello everyone!! I have been doing a lot of research lately of rental properties and mortgaging. I have read and watched videos on the concept of hard money lending. Can someone break down the idea of hard money lending, maybe by numbers to help me figure out exactly how hard money lenders work. I do understand that depending on the location will vary in rates. Any knowledge is knowledge passed! thanks

[Jeremy Lee]

@Mario L. Yes, for a $100k loan interest for the year would be between 10k and 15k, divided by the number of payments per year. For example if you have a monthly payment with 10% APR, you would pay $833 per month plus the cost of the points upfront. When your loan is up you are on the hook for the original $100k.

One strategy is to refinance the house with a bank to get a lower interest rate and pay off the hard money lender. Hopefully after you renovate the property will apprise higher than the original cost, interest and renovation costs. Keep in mind that it may be difficult to refinance with a conventional bank if you do not have a W2 job. For each success story there are more than a handful of failures. The other strategy is to sell the house (eg: a flip) and recoup the money, plus interest and your earnings. Again, it is important to run your numbers and account for contingencies in the event projects run late and over budget.

Essentially what you are paying for the speed, convenience and possibly expertise of the hard money lender. Good lenders will research your project and not lend to you if these large profit margins do not exist, but unfortunately not all lenders are this savvy. 

Best of luck!