Never heard of the term, Hard Money before? It is one of the most valuable, yet misunderstood tools in the real estate investors tool box. In this article, I will show you how several of our clients used hard money to get rich quickly in real estate and you can too! Hard money loans are loans made, usually by private lenders; on the basis of the value of the collateral as opposed to the traditional banking criteria of credit scores, tax returns, income statements, etc. of the borrower. In other words, they are based on the hard assets. Typically hard money loans carry interest rates and points 50-100% higher than traditional bank loans. This has lead to the impression that they are hard to repay. However to the sophisticated investor, hard money is in invaluable because it is: Quick Hard money lenders can close in a few days after appraisal and title work, unlike bank loans where you are still furnishing documents weeks after submitting your application. Easy True hard money lenders require only an appraisal and proof of clear title. Some quasi-hard money lenders now want credit and income data from borrowers. Versatile Try to get a bank loan on a property that is uninhabitable. Or a small apartment or office building, a storefront, restaurant or other non-residential property. It is almost impossible in most cases. Cheap Thats right, cheap! Cost is a relative concept. What if the bank wont make the loan to do your deal? You could take in a money partner. Lets say the hard money loan cost you 2% per month with 10 points upfront and it takes you 6 months to rehab and sell the property. (These are the upper ranges of costs for hard money, to make the point!) You have paid a total of 24% of the purchase cost of your project and lets say you doubled your money when you sold. Your cost would now be 12% of the selling cost instead of the 50% you would have had to split with a partner! Let me give you some real world examples of profitable deals using hard money. A client was able to take down a package of 10 properties in Albany, NY at a bargain price from a distressed, out of state seller for $400,000. These were inner city properties that banks were not too interested in financing, despite the clients high credit score. Also, these 1-3 unit properties needed serious rehabbing. The client was able to sell off 7 of them, as is, and paid off the hard money. He was left with 3 homes as his profit! After rehab, he made over $175,000 on the deal. Another client stood to make over $220,000 on a bargain property being sold for 60% of value by an estate if he could close in 30 days. Although he was credit worthy, he was not willing to take a chance that a bank could close in that time frame. We referred him to a hard money lender that provided the cash by putting a blanket mortgage on two of his investment properties. He closed in 10 days, then refinanced the hard money out with a traditional bank refinance. Richard, a client in Brooklyn, made a million dollars on one deal with no money down! Several years ago, he found an owner of a dilapidated, 25 unit apartment building in a northern New Jersey suburb that was half empty. The owner was ill and could not handle the repairs needed to rent the vacant apartments. He was in foreclosure on a $75,000 mortgage. Richard made a deal to give the owner $25,000 for the deed at closing. We referred him to one of our hard money sources who advanced $150,000. Richard paid off the delinquent mortgage and gave the seller $25,000. He cleaned up the building, eliminated the many housing violations on it, then formed a joint venture with a developer. The developer totally rehabbed the building as his contribution to the joint venture; Richards contribution of course, was the building. The last I heard, Richards equity was over $1 Million! In the right situation, hard money is the easy way to real estate riches! |
