OfflineAny non-bank loan can be called, a private money loan. Hard money loans fall into this category of non-bank financing and are given their namesake because they are loans against “hard” assets. For borrowers used to qualifying for bank loans, the interest rates charged by non-bank lenders may be shocking. For example, hard money interest rates can range from 7% to 15%, or even higher. Hard money loan interest rates are not ruled by the same factors that affect bank rates. I will mention just a few reasons here, but comment below and add additional reasons or factors to this short list:
1. Rapid Fundings: Hard money lenders can move faster towards a loan closing than banks. Because of the short closing timeframe, a higher risk factor is associated with hard money loans, which will increase the interest rate charged.
2. No credit checks: Because most hard money lenders don’t perform credit checks on borrowers, this is another reason rates are higher. This ties in with number one above.
3. Condition of Property: Hard money loans are perfect for vacant properties, or properties in need of repairs. Because the needed work may or may not get done after a loan closes, this adds a higher level of risk, thus a higher interest rate. ccurwick
As mentioned above, hard money lenders are non-bank lenders, which places them in the category of private lenders.
Investors getting started in the program and learning about wholesaling, and building a cash buyers list often fail to connect the dots and realize that they are creating their own list of private money that could become private hard money lenders for you with your transactions in the future.
Feeding a cash buyer a couple of properties that they make money from is actually building a relationship with these people that can easily lead to you borrowing money from them to do your own projects.
Often times, new investors want to jump over the moon with their first deal. I don't know that I would recommend this because it generally involves taking risks you are not prepared for, and having to manage projects that are unfamiliar and can get out of hand and cost a great deal of money to resolve. Some of the properties we wholesale are examples of the sad results of other investors who got in over their heads.
Take it step by step, it isn't wise to try to eat an elephant in one bite. Build your money relationships with your cash buyers and they will naturally evolve into bigger deals, private lending relationships, and ultimately partnerships on much larger deals.
Dallin Wall
Real Estate Training Team
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