Why Does Hard Money / Private Money Cost So Much?

As a Mortgage Broker in Florida (Palm Beach Gardens) I have built up a reputation as having many of these type of Hard Money Investors at my disposal.  While this is true I am also asked many times why does it cost so much to borrow money from these Investors.  I have always found in life that sometimes it easier to understand things if you look at it from the the other side. 

Hard Money /Private Money is not always about greed but about using common sense.  When you are need of these type of loans it is because of:

• Poor Credit
• Conventional Financing has denied your request for one of many different reasons
• Alt A and Sub-Prime  have also denied your application for anyone of many reasons
• Need a Fast Loan

Now these Investors realize this, believe it or not they are in most cases more aware of conventional guidelines than most of the industry.

Lets take a look at a typical Hard Money loan of $150,000. Please keep in mind you will be looking at this from the Hard Money side. 

11% (est)

$1,375 return on their Investment

Most people will look at this at think this is crazy. However, Please keep in mind if you where liquid enough to float the $150,000 what would you expect to return on your investment especially if you can go out and buy something very safe.  These loans are high risk loansin a market (In Florida) that is decline and has glut of properties on the market.  Please keep in mind with the current market conditions Hard Money Investors DO NOT WANT YOUR PROPERTY NO MATTER WHAT THE LOAN TO VALUE IS.  These Investors want to make their money back from you paying back on the money you borrower.

I have been contacted by several clients who believe they have re-invented the wheel. While I agree many of these look great deals on paper you must look at it from the other side. 

• What if the Property Does Not sell?
• What if you can't restore your Credit?
• What if you can't get a conventional Financing loan to refinance?
• What if?
• What if?
• What if?

Why Do Hard Money / Private Money Loans come with Points?

This is a very common question for most clients. The answer is two fold. First of all please keep in mind the majority of these investors DO NOT Pay the Mortgage Brokers.  Not to be rude but I do not work for free and expect to be compensated for my time and efforts.  Second many of these Hard Money Investors want to make sure you are very tied to the property. (They call this Glue) If you are willing to pay all of this money up front then this makes you a much less of a risk of default for the Investor.

In closing, I hope I was able to shed some light onto why these type of loans cost as much as they do. For more information on Hard Money loans please see my post on: Hard Money/ Private Money the Basics. Please remember when searching for Hard Money / Private Money loans each investor is different and each one will require a different rate of return on their investment. 

For More Mortgage Advice: Mortgage Advice in South Florida