Hard Money

[Brian Gibbons]

Hard Money means EXPENSIVE money but generally no credit rating is required. Here we describe Hard Money.

[Brian Gibbons]

Part 1 - What Exactly is a Hard Money Lender Anyway?
by Steve Cook

Private or "hard money" lenders are private individuals with surplus money available for investment. Some have deep pockets while some have limited resources. Based upon their own personal criteria, they lend this surplus money, primarily on a short-term basis, to real estate investors who use it for a variety of profitable purposes including buying and repairing distressed properties.


Why is it called "Hard Money"?

Don't be confused by the term "hard money." It doesn't mean that this money is difficult to find or obtain. Actually, it is some of the easiest money to procure. So why is it called "hard" money, you ask? Good question. In the world of finance, money is either "hard" or "soft."

Hard money has stricter terms and a clearly defined repayment schedule. Softer money has easier terms and a more flexible repayment schedule (e.g., debt service subject to available cash flow). In the case of private financing, the terms for hard money loans are exceptionally harsh with very low loan to values (LTV's), higher than market interest rates, and a lot of upfront points.


Typical Terms for Hard Money Loans

Terms for these types of loans will vary from lender to lender and will depend upon the experience level of an investor as well as the length of an investor's relationship with a particular lender. Generally, a hard money lender will provide a loan for 50-75% of the after-repaired value of a home at an interest rate of 12-18% for a period of 6 months to five years. They will also charge between 2-10 points as an upfront financing fee.

As you invest, you will discover that these terms will vary from lender to lender. Some will only charge interest while some will amortize their loans. Some will lend repair money; others won't. Some will place the repair money in escrow to be drawn out as the work is completed; others will let you leave the settlement table with it. Some will lend closing costs; some won't. Ultimately, when finding hard money lenders, you will need to determine their terms and how they might fit into your plans as a wholesaler.


Lending Criteria for Hard Money Lenders

Like terms, lending criteria also varies from lender to lender. Each has their own preferences with regard to areas in which they will and will not lend and types of investors to whom they will and will not lend. Some will check your credit, some will not. Some will do their own appraisals, some will not. Some will charge for an appraisal, others won't. Some will charge an inspection fee for each draw from the repair escrow, others won't. Some will only lend in certain areas while others will lend everywhere.

Some are more numbers-driven when it comes to decision-making while others go more on their feelings about you and/or the neighborhood. What about my credit? With terms so favorable to the lender, most hard money providers are concerned primarily with the value of the property, placing less emphasis, if any, on the credit of the payor. They just want to know that in the event the payor defaults they will possess an asset from which they can extract their original investment and possibly more. However, this is not to say that lenders desire to go through the hassle and expense of taking back and reselling a property but merely to point out that due to the terms of the loan, private lenders are secured, and feel secure, whether a borrower pays or not.


Hard Money Lenders Are People, Too

You must keep in mind that most hard money lenders are private individuals. They are not institutional investors who have a set standard of guidelines dictated by the federal reserves. They can be flexible, they can be tough. They are people just like you and I. You can talk to them. You can befriend them. You can laugh and joke with them. They can be your neighbor, your doctor, your attorney, or your bus driver. They usually don't advertise that they lend money, but instead are found through word of mouth.


A Great Resource

Hard money lenders are a great resource for real estate investors, particularly a beginner with limited resources (e.g. cash and credit). Having a hard money lender on your team enables you to confidently make offers on properties. It enables you to purchase properties when your offers get accepted, and it provides you with the funds necessary to do the repairs if needed. In fact, I have heard of some cases where individuals have even been able to borrow holding costs, but I have never met any lenders myself who will actually do this.

continued...

[Brian Gibbons]

Part 2 - Finding Hard Money Lenders
by Steve Cook

Finding hard money lenders isn't really a mystery. At least it isn't a hard mystery to solve. You just need to get out there and take the right steps toward uncovering them. There are many different ways their investors, attorneys, accountants, insurance agents, etc., who are generally to locate hard money lenders or private lenders. When talking with other professionals, I tend to refer to my lenders as "private lenders" simply because not everyone is familiar with the term "hard money lender." I have found most of my lenders by asking for referrals from others willing to help me because I do what I can to help them.

Some of my favorite people to ask are settlement/closing attorneys. They usually prepare the loan documents for hard money lenders and most attorneys will be able to give you at least one name. In fact, on a number of occasions the attorney whom I asked for a referral was a hard money lender themselves.

Accountants are also a good source for hard money lenders since they have clients who are sitting on a lot of cash and need to do something with it. In some cases, they even have clients who already hold paper. Such people are great to approach about lending money since they already understand the business of lending. They have either taken back paper upon selling a property or they have lent their own funds to someone.

Real estate paper is a very secure investment, and people who understand the business of lending don't mind doing real estate loans, especially when the LTV is low and the interest rate is high. If someone trusts their accountant enough to let them handle their finances, then a referral from an accountant should carry a lot of clout. Another method of finding hard money lenders is to write down the addresses of homes undergoing renovation.

With few exceptions, if I go to the courthouse with ten addresses to uncover the lender involved in each of these renovation projects, you will find that a private lender is funding at least one of them. Contact the lenders that you discover and get to know them, especially if they have already lent money on a home in an area where you want to invest.

Insurance agents who sell hazard insurance policies (particularly those that specialize with investment properties) have to put a "loss payee" on all of the policies where a lender is involved. The loss payee is the lender, so the insurance agent can tell who are private lenders and which ones are not. An active agent could probably go through their records and come up with dozens of names of people who have lent money privately on policies they have written.

Mortgage brokers can also be a good source for locating hard money lenders, particularly those that work with investors on a routine basis. I personally feel that any mortgage broker that deals with investors should have a hard money lender in their bag. If they don't, I wouldn't consider them a good mortgage broker. You may have to pay the mortgage broker a fee for the referral, but it is worth it if it means getting a deal done. Increasing your chances of finding a hard money lender has to do with the circles that you run in, the people whom you ask, and the number of people you ask.

Chances are if you are asking the cashier at your local convenience store if they know of any hard money lenders, the answer you get is going to be, "Huh?". If you ask an attorney or title company who works with a number of investors in your area, it is much more likely that you will find someone who will be able to provide you with the names of several lenders. If you don't get anywhere the first time, don't stop asking people until you find one.

Author's Biography
Stephen Cook is an author and active investor in Baltimore, MD. He has bought and sold over 150 properties in the last two and a half years, including 27 in the first two months of 2001 alone. Steve pursues many avenues of investing and specializes in the wholesaling and rehabbing of properties for profit.

[Brian Gibbons]

Part 3 - Profiting from your Hard Money Lenders
by Steve Cook

Having a good hard money lender will help you to become more profitable. You will be able to take advantage of deals when they come available. You will be able to act quickly if need be. You will be able to obtain a prequalification letter from your lender to give yourself more credibility when making offers, and finally, you will be able to act as the bank by connecting your wholesale buyers with your lenders so they can borrow money to buy properties from you.


Pre-Qualification Letters

If you are pursuing a lot of properties listed with real estate agents you will need a prequalification letter to submit along with your offers on many distressed properties, particularly those that are owned by institutions. You can obtain a prequalification letter from a hard money lender for this purpose, and in fact, your offers will carry more weight when submitted with a prequalification letter from a lender that is active in your area whom most real estate agents - particularly the ones that specialize in foreclosures - will recognize.


Hard Money Lenders and Your Buyers,
A Match Made in Heaven

It is extremely helpful to have a stable of hard money lenders to call upon to finance the purchase and rehab of properties that you may want to buy. However, even if you never buy a property for yourself, the second and most important reason to develop contacts with as many hard money lenders as possible is that hard money lenders will be your best and most reliable resource in making sure that your deals are consummated when you sell homes to other investors. You want to become the bank.

Many prospective buyers for your wholesale properties are not all cash buyers, whether they claim to be or not. In reality, most cannot simply write a check from their bank account, but rather must borrow their money from other sources. Depending on their source of funds, this may or may not be OK. If an investor doesn't have a legitimate source of funds, then it is your job to screen them a little further to determine if they qualify for you to take them to one of your hard money lenders. Many are capable of making mortgage payments and completing a rehab and would love to buy your properties if they could come up with the cash.

In this case, it is your job to take control of the deal and lead them to the money. Become the bank as well as the provider of the property. But be careful. Maintain control of the transaction and use some discretion in deciding whom you take to your lenders. You don't want to burn bridges with your lenders by bringing them deadbeat buyers who default regularly. Your buyer's credit report should show an intent to repay all of their debts on time, and they should have some source of regular income which gives them the ability to make mortgage payments to your lender.

Ultimately, you want to be able to take anyone who wants to buy a home from you (assuming they meet your minimum criteria) to one of your lenders. I have developed a regular following of investors who buy from me because not only do I find the properties but I also line up the financing, and you can too.

Author's Biography
Stephen Cook is an author and active investor in Baltimore, MD. He has bought and sold over 150 properties in the last two and a half years, including 27 in the first two months of 2001 alone. Steve pursues many avenues of investing and specializes in the wholesaling and rehabbing of properties for profit.

[Brian Gibbons]

Hard Money Lenders

To add or modify information about a company that provides hard money loans to real estate investors, please submit our Hard Money Lender Form. Thank you.


(Note: This is merely a listing of lenders and should not be
construed as an endorsement. Do your own research.)

A Global Funder
Area Nationwide
Contact Anthony Gardner
Address 8524 Villa La Jolla Dr. Suite #162
City, State, Zip La Jolla, California, 92037
Phone [phone]
Fax [phone]
Web Site www.globalfinancenetwork.com
Email [e-mail]



Acquisition Funding Source
Area Texas
Toll Free 866-237-0600
Phone [phone]
Fax [phone]
Web Site www.acquisitionfundingsource.com



All Real Estate Loans & Investment
Area Nationwide
Phone [phone]
Web Site www.allrealestateloans.com



Blue Crown Funding, Inc.
Area Nationwide
Contact Charles W. Williams
Address 3943 Irvine Blvd, Ste. 172
City, State, Zip Irvine, California, 90292
Phone [phone]
Fax [phone]
Web Site www.bluecrownfunding.com
Email [e-mail]



Brookview Financial
Area Connecticut
Phone [phone]
Fax [phone]
Web Site www.brookviewfinancial.com



Creative Financial Corp
Area Nationwide
Phone [phone]
Fax [phone]
Web Site www.creativefinancialcorp.com



CSB Capital LLC
Area Nationwide
Contact Sukhbir Benipal
Address 275 Central Park West 19B
City, State, Zip New York, New York, 10024
Phone [phone]
Fax [phone]
Web Site www.csbcapital.com
Email [e-mail]



DHLC Investments, Inc.
Area DFW Metroplex, Colorado
Contact Rob
Address 812 Youpon Dr.
City, State, Zip Allen, Texas, 75002
Phone [phone]
Fax [phone]
Web Site www.dhlc.com/Investindex.htm
Email [e-mail]



Hard Money Funding
Area Nationwide
Phone [phone]
Fax [phone]
Web Site www.hardmoneyfunding.com



Heartland Capital Group, LLC
Area Nevada, South Carolina, Texas
Contact David Rockaway
Address 2716 Devonshire CT
City, State, Zip Grapevine, Texas, 76051
Phone [phone]
Fax [phone]
Web Site www.heartlandcapitalgroup.com
Email [e-mail]



JW Capital
Area Nationwide
Contact John
Address 2323 N. Field Street
City, State, Zip Dallas, Texas, 75201
Phone [phone]
Fax [phone]
Email [e-mail]



Lafayette Financial
Area Arizona, California, Nevada
Toll Free 888-576-6534
Fax [phone]
Web Site www.lafayettefinancial.com



Managed Mortgage Investment Fund LP
Area Texas
Contact Don H Konipol
Address 1315 Weslayan, 24 Greenway Plaza
City, State, Zip Houston, Texas, 77046
Phone [phone]
Fax [phone]
Web Site www.privatemortgagefinancing.com
Email [e-mail]



Mortgage Bankers, Ltd.
Area Nationwide
Contact Robin Snyder, President
Address 4621 Horizon Circle, Suite 3
City, State, Zip Baltimore, Maryland, 21208
Toll Free [phone]
Fax [phone]
Web Site www.refinancecash.com
Email [e-mail]



Noble Mortgage & Investments, LLC
Area Texas
Contact Darel I. Daik
Address 710 N. Post Oak Road, Suite 208
City, State, Zip Houston, TX, 77024
Phone [phone]
Fax [phone]
Web Site www.noblemoney.com
Email [e-mail]



Pacific Coast Investment Company
Area Washington
Toll Free 800-562-6278
Phone [phone]
Web Site www.pacificcoastinvestment.com



Platinum Funding
Area Nationwide
Toll Free 800-427-3666
Web Site www.hardmoney.com



Prestige Mortgage Services
Area Nationwide
Phone [phone]
Web Site www.prestige.1st-website.com



Private Investor Loans
Area California
Phone [phone]
Web Site www.privateinvestorloans.com



Private Mortgage Financing
Area Texas
Phone [phone]
Web Site www.privatemortgagefinancing.com



Ready Mortgage Corporation
Area Nationwide
Phone [phone]
Fax [phone]
Web Site www.readymort.com



Rehab Funding
Area Pennsylvania
Phone [phone]
Fax [phone]
Web Site www.rehabfunding.com



Rehab Money
Area Illinois
Phone [phone]
Fax [phone]
Web Site www.rehabmoney.com



Shelby Mortgage Inc.
Area Florida, Indiana
Contact James D. Payne
Address 11699 Maple Street
City, State, Zip Fishers, Indiana, 46038
Phone [phone]
Fax [phone]
Web Site www.ShelbyMortgage.com
Email [e-mail]



Statewide Capital Investments
Area California, Florida, Illinois, Indiana, Missouri, North Carolina, Ohio, Texas
Toll Free 800-460-1890
Phone [phone]
Fax [phone]
Web Site www.statewidellc.com



The Premier Branch of Texas Residential Mortgage
Area Nationwide
Contact Sammy Hoelscher
Address 2601 Network Blvd.
City, State, Zip Frisco, Texas, 75034
Toll Free 8779365968
Phone [phone]
Fax [phone]
Web Site www.friscomtg.com
Email [e-mail]



Vestin Mortgage
Area Nationwide
Contact Daniel Stubbs, VP
Address 2901 El Camino Ave.
City, State, Zip Las Vegas, Nevada, 89102
Phone [phone]
Fax [phone]
Web Site www.vestinmortgage.com
Email [e-mail]



Vista Funds LLC
Area Virginia, Maryland, DC
Contact Jim Comer
Address P.O. Box 6777
City, State, Zip Washington DC, Washington DC, 20020
Phone [phone]
Fax [phone]
Web Site www.vistafundusa.com
Email [e-mail]



Wonder Funding
Area California, Georgia, Florida, Illinois, Tennessee, Texas
Contact Lance Day
Address 5740 Prospect Avenue
City, State, Zip Dallas, Texas, 75206
Phone [phone]
Web Site www.WonderFunding.com
Email [e-mail]