Need Hard Money / Private Money Short Term?

With the Mortgage Crisis in full swing and many "Investors" wanting to take advantage of a down market in Real Estate I have found many Investors are turning towards Hard Money / Private Money Mortgages for their financing needs.  The purpose of this post is to inform the novice or the short term investor what to expect when choosing this type of financing.

Before I begin please understand the following:

Your Loan is a High Risk Loan

No Matter if You Have the Following:

• Great FICO
• Great Loan To Value of the Appraisal
• Documentation
• Years of Doing Investing

Your Loan is a High Risk Loan Period.

I have found many either Novice investors or Investors new to Hard Money lending getting confused with points vs. rate.  Many believe that it is a "Good Thing" for the Hard Money Lender to be paid off quickly and therefore don't have to pay a lot of points. WRONG! 

Please remember these Lenders are not the Church, they are not a Charity, they are in business to maximize their profits.  The money that they are lending you has to be pulled out of somewhere else where they are making a return on their money so hopefully they will make a higher return with you and your loan.  By paying off your loan quickly the Interest rate that they are charging is insignificant because you will only be making a few payments.  (Short term meaning under 6 months)

Example:        

Loan Amount: $250,000

Interest Rate 12% = $2,500

2 Points = $5,000

Gross Profit of $7,500

Now keep in mind that is gross. They have an office staff they have to pay for out of the profit.  In addition please take a look at it from the Hard Money Investor for a moment. 

Hard Money Lenders Point of View:

$250,000 liquid making X (in a safe investment)

3% Return on your money for a High Risk loan. ($7,500)

Would you reach in your pocket and lend your money on a high risk loan (No Matter how you look at it, when you go to a Hard Money Lender it is a High Risk Loan) for a 3% return?  I know my answer would be a big NO!  Now lets take a look at reality.

Loan Amount $250,000

Interest Rate of 12% = $2,500

5 Points = $12,500

For a Gross Return of 6%

This is better but not great. Please remember if you choose to seek out a Hard Money / Private Money loan don't let yourself get to involved. Please look it at from their side for a moment.  These Lenders DO NOT want your property. Especially in the current Market.

For more information on Hard Money / Private Money: Mortgage Advice in South Florida