There seems to be a lot of confusion surrounding exactly what is meant by private money loans (also referred to as hard money loans).
The term has become blurred a little in the past ten years, but the basic idea of private money lending is that private individuals who have money to invest choose to loan that money, generally on real estate secured transactions, with the desire to receive a fair return on their investment.
Some private investors go on to form a corporate entity, and utilize lines of credit as a source for the funds that they loan - and this is where the boundaries begin to become a little hazy (as these private investors may begin to look a little like institutions).
Hard Money Loan Definition:
A hard money loan is a short-term bridge loan that is used for acquisitions, turnaround situations, foreclosures and bankruptcies. Interest rates, although high on business hard money loans, are less costly than taking on a financial partners or losing the real estate opportunity altogether.
Who are Hard Money Real Estate Loans Ideal for?
Hard money real estate loans are ideal for borrowers who are unable to obtain funding through a conventional source. The properties or the borrowers are often clouded by legal or operational problems. Business hard money loan lenders can often help solve the problems and get the property repositioned for a conventional refinance.
Hard Money Loan Lenders
All hard money loan lenders are different. The hard money loan lenders we refer clients to will usually consider income producing properties such as apartments, condo/co-op conversions, retail/shopping/strip centers, mixed use properties, industrial, office buildings, hotels/motels, medical, mobile home parks and restaurants, as well as non-income producing properties such as land acquisition, development and construction, bank workouts, foreclosures and bankruptcies.
How long do hard money loans typically last?
Hard money loan terms are typically no longer than two to three years. The reason is simply that a longer term becomes too expensive for the borrower. With hard money loan lending, the goal is to have the borrower in and out of the hard money loan as quickly as possible. The hard money loan lender will analyze each transaction during the due diligence process for "good risk" -- to be sure that a property can be repositioned for conventional refinancing or sale within one or two years.
If you an interest in private financing or (Hard Money), please give us a call to discuss how we can help.
