Hard Money Loans Fill a Lending Niche

When it comes to hard money loans, sometimes more civilly referred to as private money loans, the public perception seems to view them somewhat akin to loan sharking. We're not here to claim that no hard money lender ever acted like a loan shark but “knee-capping” incidents are likely few and far between. Actually, the concept of private money lending has been around for a long time and fills a legitimate void left in the market by traditional banks or mortgage companies leery about loaning money for certain types of properties or due to certain situations that might have nothing to do with creditworthiness.

What is a private money loan? It's exactly what it sounds like. When banks or other traditional sources of real estate financing get nervous, private sources often step up and write the note. Borrowers should be aware that the interest rate paid will likely be much higher than through your bank down the street, and there are some situations involving too much financial risk even for a hard money lender, but often they do provide a workable alternative.

The type of customer looking for a hard money loan runs the gamut, as this quote from Bankrate.com illustrates. “It's across the board,” says Brandon Thompson, a private money broker in Denver. “You'll see anything from a $70,000 foreclosure to a half-a-million-dollar loan, where somebody just needs so much cash out and can't verify their income to make it worthwhile for a t

raditional lender to look at.”

There are a few types of situations which make a bank nervous to lend money. One is when the value of the actual land the house sits on is far greater than that of the structure itself. Another group that likes to take advantage of hard money loans is real estate investors, especially those who buy houses cheap, rehab them, then turn around sell them – flipping, as it's called in the trade. When you do a high volume of property deals, the red tape and restrictions propagated by the traditional lending industry become onerous indeed. In the end, it's worth paying a little more in interest and fees in order to get a deal done fast.

With Wall Street still stuck on a roller coaster of speculation and knee-jerk reaction to global political events, investors with money on the sidelines should at least be aware of the opportunity to make hard money loans. There's no need to learn the process from the ground up. There are companies around the country that have formed in order to bundle money from disparate sources to make hard money loans. As always, DON'T risk money you can't afford to lose, and keep in mind that this type of investing isn't for everyone. But it doesn't hurt to do a little research, eh?

The American Monetary Association Team

Flickr / Editor_Tupp

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