What is a “hard money loan”? What is the difference between a “private lender” and a “hard money lender”?
Essentially, many would argue the only difference between a hard money lender and a private lender is that you have a personal relationship with the private lender and the hard money lender is someone you found on CL, through a reference, or other means.
If you have 10m sitting in your account you probably don’t need either one. However, most investors aren’t that lucky. Your wealthy uncle, you friend from church, or your coworker may be a great source of funding. One of my “private lenders” is an old friend from high school. I reached out to him asking how would he like to receive a return MUCH higher than what the banks are paying. We have developed such a great relationship that I can get 80K just on a phone call. No contracts! No recorded mortgage. We simply agree on an amount and how it will be paid back. Some of the loans are interest only and other amortized. He is one of the FEW that never asks for anything in writing. BTW, how is he protected if I die tonight? I book everything in quickbooks so if something happens there is a record of the loan and I know he will be paid. What a great deal for me!
Hard money lenders are a different game. They are almost always going to require an appraisal, a mortgage, and note. Their rates are often higher. They are almost always going to require the investor puts some of their own money into a deal. The only BAD loan I ever wrote was a loan for 100% of the purchase price. The borrower quit paying and a few grand later in legal fees I now own the property. I broke my own rule and it cost me.
Money is the life-blood of investors. Almost all deals require cash BUT it doesn’t matter WHERE the cash comes from. If a seller gets 100K for his property, he doesn’t care if it is money from the bank, your best friend, or a hard money lender. The key to investing is using OPM-other people’s money.
If you are shopping for a hard money loan from an unknown source, BE CAREFUL. Scammers often offer very low rates, and ask for money up front. The odds are you will not get the loan, and never recover the fees paid in advance. The safe way to deal with a new lender is to demand that any origination fees are paid at closing.
If I can offer any assistance, answer questions, or help in any other way I am only a phone call away. Line up your lenders, verify, verify, verify, and be cautious when dealing with an unknown lender. They can turn out to be a great source of funding, or be the nightmare that scammed you out of 2K promising 2% interest.
