Private Hard Money Lenders & Investors

Private money investors and companies that specialize in raising funds from many individual private investors and deploying them in real estate are commonly referred to as private hard money lenders. These private hard money investors are savvy and well aware of the areas in which they lend. Due to this familiarity and also the independent nature of their lending activity, they accommodate a lot of residential and commercial lending scenarios that other lenders wouldn’t.

Historically, this was the most prevalent form of financing. With the expansion of financial markets and financial institutions and also with the legislation of various consumer and borrower protection laws over the past century, these types of private hard money mortgage loans have been mostly ridden from the owner-occupied borrower homes and been relegated to real estate investors looking for short term and medium term financing.

Mortgage lenders and commercial banks mostly lend according to their strict underwriting criteria which is based on generalized and standardized procedures. But not all real estate and investors fit in to a set criteria. The gap between traditional financing sources and active real estate investor needs are filled by private hard money lending.

Why approach a Private Hard Money Lender?

Opportunity: Opportunities in real estate are widespread especially when the area of operation of the real estate investor is limited. When they do see opportunities, time is of the essence. Acting fast in negotiating a contract and getting it financed fast in time usually closes the deal. Lenders and banks due to their lengthy and deliberate processes are not ideal if the time to close is less than one to two months. This time expectation is considered reasonable even for a well set-up and presented deal. Due to this opportunistic real estate investors approach private hard money sources for loan needs in a deal facing time-crunch.

Unconventional: A loan is considered unconventional when it doesn’t fit the guidelines of banks or mortgage lenders. Most unconventional loans are due to property condition or type, or due to borrower loan profile concerning either credit or down payment or income shortcomings or exceptions. Private money investors with their vast experience in the area of their expertise can evaluate the loan in a more flexible and objective manner to find a way to make the deal work.

Typical Private Hard Money Lender Guidelines

Equity in the collateral on which lending is sought is the no.1 guideline for majority of the private hard money investor loans. Not that other criteria related to borrower or property doesn’t matter. They do matter, but without sufficient equity, the deal usually fails. Cross-collateralization is always allowed, but may vary from lender to lender.

Usually credit history of the borrower carries the most weight with other real estate lending sources, but not with hard money lending. Credit does carry good amount of weight with residential private hard money lenders, but not as much with commercial private money investors.

The duration for which they lend out the money (loan term) for real estate is usually very short compared to other financing outlets. Usually no more than six months to a year is the loan term on hard money.

Loan payments are usually paid at once when the loan is paid off at the end, provided there was enough equity to cover them. Interest rates are usually very high and additional fees like points are added in the loan amount. Mandatory pre-payment penalties are quite wide-spread too.

Bridge loans are short-term financing typically through private investors.Personal loans from private investors are not common unless some sort of non-perishable collateral can be attached, same is the case with private money business loans.

Establishing a good working relationship and excellent track record in terms of payments, pay offs and project completion with local, regional and national private hard money investors is a must to succeed in  all seasons and all aspects of real estate investment.