Hard Money Loans

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indexonlyplease
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Hard Money Loans

Post by indexonlyplease » Mon Jul 20, 2015 7:28 am

Looking for some advice on being a hard money lender. Anyone lending now or has advice on the topic.

This is money in my savings account and nothing to do with current investments in the market.


Cliff

SimonJester
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Re: Hard Money Loans

Post by SimonJester » Mon Jul 20, 2015 9:03 am

Is this your emergency fund / Do you have an emergency fund?

Ask yourself this question why would a person turn to you vs getting a better rate at a bank. And why would you want to risk your money when a bank is not willing.
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

playtothebeat
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Re: Hard Money Loans

Post by playtothebeat » Mon Jul 20, 2015 9:08 am

Have you looked at Prosper, Lenderclub, etc?

skepticalobserver
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Re: Hard Money Loans

Post by skepticalobserver » Mon Jul 20, 2015 1:11 pm

Some observations about hard money lending:

If you’re doing homeowner lending there’s a ton of consumer friendly regulation to comply with—off the chart interest rates will hit a wall of usury laws. Do you know an attorney with FHA reg. experience?

For commercial lending quite possibly you're dealing with types who can’t borrow from a bank for a bunch of reasons that sound marginally plausible but are probably suspect. Dealing with this kind requires the kind of vetting, credit and otherwise, that only a pro can do. If you’re able to get past these issues the loan-to-value ratio should be 50-50, tops. Get personal recourse as well as a property liens. Keep maturities very short. If you can get up-front points use them as reserves for litigation costs. Make friends with a real estate attorney.

Hard luck stories need not apply. They see you coming.

Tanelorn
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Re: Hard Money Loans

Post by Tanelorn » Mon Jul 20, 2015 1:21 pm

There have been some prior discussions here, be sure to search for "hard money" in the box at the top right. Here was one:

viewtopic.php?t=147930

Carefreeap
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Re: Hard Money Loans

Post by Carefreeap » Mon Jul 20, 2015 1:38 pm

They are high risk for a reason.

Hope you're up to speed on debt collection rules.

EnjoyIt
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Re: Hard Money Loans

Post by EnjoyIt » Mon Jul 20, 2015 2:00 pm

Carefreeap wrote:They are high risk for a reason.

Hope you're up to speed on debt collection rules.
I thought there is only one rule. If you don't pay I will break your knee caps.

astrohip
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Re: Hard Money Loans

Post by astrohip » Mon Jul 20, 2015 2:19 pm

Tanelorn wrote:There have been some prior discussions here, be sure to search for "hard money" in the box at the top right. Here was one:

viewtopic.php?t=147930
That's a good thread, lots of info.

I do some on-the-side private mortgage lending. Short version, it can be done.

Slightly longer... these are people who can handle the mortgage, but can't get a conventional loan. They may have cash businesses, or a recent bankruptcy, or not enough credit history, or whatever. But with today's tougher lending requirements, there are people who want a mortgage and can't get one.

I require min 20% down, cash, at closing. I fund up to 80%. Rate is between 10-12%, 30 year term. I have a guy (who I trust intimately) who checks out the deal--makes sure the house is legit, that the sale price is FMV, that the house doesn't need unusual work, etc. He looks at the neighborhood, the buyer, everything. I pay him 1-2% of the loan for doing this. I get a typical deed of trust, lien, policy title. Borrower pays all costs.

Borrower can't prepay for three years. If they want to refi, they have to pay the balance of three years interest to pay off the loan. I have had several people do this (usually towards the end of the 3 yrs), once they can get approved for a std mortgage.

I'm stunned there are people who will do this, but I have many of these. Between three of us who do this, we have probably 40-50 loans out. :shock:

I can't stress enough, this is money I can afford to lose, and I don't have any immediate need for. FWIW, I have never had one go bad. And if one did, at 20% down, I foreclose, put it on the market, and get my money back and more.
"Happiness is not about doing, it’s about being." - R Branson

Carefreeap
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Re: Hard Money Loans

Post by Carefreeap » Mon Jul 20, 2015 2:27 pm

astrohip wrote:
Tanelorn wrote:There have been some prior discussions here, be sure to search for "hard money" in the box at the top right. Here was one:

viewtopic.php?t=147930
That's a good thread, lots of info.

I do some on-the-side private mortgage lending. Short version, it can be done.

Slightly longer... these are people who can handle the mortgage, but can't get a conventional loan. They may have cash businesses, or a recent bankruptcy, or not enough credit history, or whatever. But with today's tougher lending requirements, there are people who want a mortgage and can't get one.

I require min 20% down, cash, at closing. I fund up to 80%. Rate is between 10-12%, 30 year term. I have a guy (who I trust intimately) who checks out the deal--makes sure the house is legit, that the sale price is FMV, that the house doesn't need unusual work, etc. He looks at the neighborhood, the buyer, everything. I pay him 1-2% of the loan for doing this. I get a typical deed of trust, lien, policy title. Borrower pays all costs.

Borrower can't prepay for three years. If they want to refi, they have to pay the balance of three years interest to pay off the loan. I have had several people do this (usually towards the end of the 3 yrs), once they can get approved for a std mortgage.

I'm stunned there are people who will do this, but I have many of these. Between three of us who do this, we have probably 40-50 loans out. :shock:

I can't stress enough, this is money I can afford to lose, and I don't have any immediate need for. FWIW, I have never had one go bad. And if one did, at 20% down, I foreclose, put it on the market, and get my money back and more.
I suspect my brother got a hard money loan to buy my folks' house. Can't believe he could get a loan with a FICO <500. Then was in some state of foreclosure for the next 10 years and kept drawing on a HELOC. Finally lost it in foreclosure in 2009. My parents bought the house in 1963. Annual property taxes at the time of foreclosure $700. :oops: :oops: :oops:

Now he pays his rent late.

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indexonlyplease
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Re: Hard Money Loans

Post by indexonlyplease » Mon Jul 20, 2015 6:46 pm

The hard money loans I am talking about are for investors flipping property. They put 25% up front when they purchase the property at auction. Then after they rehab, and sell. I get my money back. It pays 14% interest per month plus 2 points up front. I have a mortgage on the property they own. If they defult then I get the property at a 25% discount plus the money they invested to fix the property.


Yes, I do agree it is a risk and not sure I will do. This is cash just sitting in savings. I am really hesitant because it is more painful to lose money then make money. As they say.

Also, I am talking about only one person that a friend of mine has been lending to for one year.


Thanks for input,

Cliff

Carefreeap
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Re: Hard Money Loans

Post by Carefreeap » Mon Jul 20, 2015 7:47 pm

indexonlyplease wrote:The hard money loans I am talking about are for investors flipping property. They put 25% up front when they purchase the property at auction. Then after they rehab, and sell. I get my money back. It pays 14% interest per month plus 2 points up front. I have a mortgage on the property they own. If they defult then I get the property at a 25% discount plus the money they invested to fix the property.


Yes, I do agree it is a risk and not sure I will do. This is cash just sitting in savings. I am really hesitant because it is more painful to lose money then make money. As they say.

Also, I am talking about only one person that a friend of mine has been lending to for one year.


Thanks for input,

Cliff
I'm not sure that you are adequately assessing the risk which is a market decline + a partially demolished or half finished house. Or a market decline and very few buyers so the house has to be rented. What happens in that scenario?

That's REALLY expensive money given what current rates are. How long has this person being doing this? What's his credit score like?

Spencer
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Re: Hard Money Loans

Post by Spencer » Tue Jul 21, 2015 12:10 am

Cliff,

You might want to look into a hard money fund rather than buying individual deals unless you have a background in real estate. You'll lose a bit in yield to fees, but you'll have much better diversification, plus the asset management will be taken care of by the sponsor. Most of the funds have a 6-12 month initial lockup but then can be redeemed monthly/quarterly.

Without a decent portfolio of loans, and the background to underwrite/manage them, you'll be taking on quite a bit of uncompensated risk.

Spencer

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indexonlyplease
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Re: Hard Money Loans

Post by indexonlyplease » Tue Jul 21, 2015 8:04 am

Spenser,

What money funds are you talking about?

My friend tha has been lending the investor money for almost 1 yr. with no problems. He lends up to 1 million.

If the investor stops interest payment do you have to foreclose on the property or do you just get the property?

Thanks,


Cliff

Spencer
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Re: Hard Money Loans

Post by Spencer » Tue Jul 21, 2015 1:09 pm

Cliff,

If the borrower defaults, you'll have to foreclose unless you structure the deal in a non-traditional manner (ie, partnership instead of a lender/borrower). If you are lending locally in FL, it is a judicial foreclosure state, which means attorney fees and a lengthy timeline (can easily be over a year in FL, sometimes longer if the borrower contests).

Lending to a single borrower simply lacks the diversification that you get in a fund. I can't recommend a specific fund since I personally invest directly in individual deals, but I have a background in RE debt and do this for a living, and hence know how much work it is to underwrite/manage these deals (esp the ones that do default). If you are looking for a passive/diversified option, a mortgage fund is the best bet. I know Fairway America out of Portland puts on a conference for these funds. You might be able to pick up some names off their website.

Spencer

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Re: Hard Money Loans

Post by Spirit Rider » Tue Jul 21, 2015 1:36 pm

indexonlyplease wrote:It pays 14% interest per month plus 2 points up front.
14%/month, this screams scam.

Legitimate hard money notes do not charge interest per month. In this interest rate environment, even hard money loans are not usurious.

Spencer
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Re: Hard Money Loans

Post by Spencer » Tue Jul 21, 2015 1:51 pm

Spirit Rider wrote:
indexonlyplease wrote:It pays 14% interest per month plus 2 points up front.
14%/month, this screams scam.

Legitimate hard money notes do not charge interest per month. In this interest rate environment, even hard money loans are not usurious.
14% per month is obviously a typo. 14% per annum paid monthly is probably what he meant.

SimonJester
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Re: Hard Money Loans

Post by SimonJester » Tue Jul 21, 2015 2:58 pm

Spencer wrote:
Spirit Rider wrote:
indexonlyplease wrote:It pays 14% interest per month plus 2 points up front.
14%/month, this screams scam.

Legitimate hard money notes do not charge interest per month. In this interest rate environment, even hard money loans are not usurious.
14% per month is obviously a typo. 14% per annum paid monthly is probably what he meant.

Even still ask yourself why does this successful house flipper need your money at 14%. After a few successful flips they should have money to fund the next flip and so forth... How many other investors are going in on this? Who's names will the title of the flip be in the flipper or the investors? My risk meter just went off the scale and broke...
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

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Re: Hard Money Loans

Post by abuss368 » Tue Jul 21, 2015 3:17 pm

indexonlyplease wrote:Looking for some advice on being a hard money lender. Anyone lending now or has advice on the topic.

This is money in my savings account and nothing to do with current investments in the market.


Cliff
Hi Cliff,

I have read many of your posts recently. You are asking very good questions. I would encourage you to simply invest in Total Bond Index. This is considered your "loan" money.

In the road ahead, you will be thankful for the return for the level of risks and most of all the simplicity.

Jack Bogle has often said "Simplicity is the master key to financial success!".
John C. Bogle: "Simplicity is the master key to financial success."

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Meg77
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Re: Hard Money Loans

Post by Meg77 » Tue Jul 21, 2015 3:23 pm

SimonJester wrote:
Spencer wrote:
Spirit Rider wrote:
indexonlyplease wrote:It pays 14% interest per month plus 2 points up front.
14%/month, this screams scam.

Legitimate hard money notes do not charge interest per month. In this interest rate environment, even hard money loans are not usurious.
14% per month is obviously a typo. 14% per annum paid monthly is probably what he meant.

Even still ask yourself why does this successful house flipper need your money at 14%. After a few successful flips they should have money to fund the next flip and so forth... How many other investors are going in on this? Who's names will the title of the flip be in the flipper or the investors? My risk meter just went off the scale and broke...
As a banker I've looked into this to some degree as I have several clients who use hard money lenders to buy and rehab properties before coming to me to refinance them into long term rental mortgages. I won't touch a rehab deal with a 10 foot pole as a traditional banker, but once the work is done and the property is leased and the appraisal comes back at much higher than the total cost of the project, I can lend against the property with no problem.

14% is a fairly typical hard money rate for investors from what I've seen - and in addition to that there are usually 2-5% origination fees off the top. These loans are meant to be and usually are short term in nature (for re-habbing and/or flipping properties), and many investors are happy to pay up. Obviously as long term financing the rate would be ridiculous; the high rate is also motivation for the borrower to finish the project and sell or refi quickly. Hard money lenders want their money back to re-lend the money out and get more origination fees more quickly.

Let's say you want to buy a $75K property that's distressed (in foreclosure, owner died and kids want to sell but it needs a ton of work, etc.), and you think if you put $15K into it then it will appraise for $115K (similar to other non-distressed homes in the area). A bank would only lend $60K (80% of the $75K purchase price), and you don't have $30K of your own money free to put into this, plus bank fees, or maybe you just don't have the 45-60 days the bank would take to underwrite the deal.

So you turn to a hard money lender for a $90K loan. After paying $2700 in fees and $7,000 in interest at 14% over 6 months, you sell as planned for $115K. Your $25K gain is lessened by financing charges to $15,300, but that's still a nice gain over 6 months. It's risky of course, but people do this all the time. It's risky but to a lesser degree for the lender, especially if he or she can afford to diversify across investors. They lend $90K for 6 months and make $9700 on that money - an annualized gain of nearly 22%.

For the record you can finance more conservative deals and charge a bit less in interest. I've lent money for private mortgages that were well collateralized with personal guarantees attached for 5%-7% with no origination fee. Easy money (as long as you don't have to foreclose...). My dad is seller-financing his condo to a lady who wants to buy but just switched jobs and can't get a mortgage yet without 2 years of history. He'll make 5%. My mom did the same when she sold her house to some old students of hers who had good jobs but bad credit.

It's hard to find these deals I think, but if you can they aren't really that risky in my view. Worst case you get the property back. So as long as there is some equity you are covered (unless you live in a state where it is costly and takes forever to foreclose).
"An investment in knowledge pays the best interest." - Benjamin Franklin

fareastwarriors
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Re: Hard Money Loans

Post by fareastwarriors » Tue Jul 21, 2015 6:09 pm

SimonJester wrote:
Spencer wrote:
Spirit Rider wrote:
indexonlyplease wrote:It pays 14% interest per month plus 2 points up front.
14%/month, this screams scam.

Legitimate hard money notes do not charge interest per month. In this interest rate environment, even hard money loans are not usurious.
14% per month is obviously a typo. 14% per annum paid monthly is probably what he meant.

Even still ask yourself why does this successful house flipper need your money at 14%. After a few successful flips they should have money to fund the next flip and so forth... How many other investors are going in on this? Who's names will the title of the flip be in the flipper or the investors? My risk meter just went off the scale and broke...
I was offered a 10% rate and 1% fee on a 320k loan . If I recalled the terms correctly, I had to hold the loan for at least 6 months before I can paid it off / refi out. I was going to put 30% down. The investor name would be recorded with the county like how if I had a traditional mortgage.

However, I didn't get through with the loan since I didn't win the bidding. I bid more than 30k over asking but I wasn't even invited back to counter.

WhyNotUs
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Re: Hard Money Loans

Post by WhyNotUs » Tue Jul 21, 2015 11:56 pm

You will find more hard money lenders to contact and get bombarded with interest in loans at biggerpockets.com

I have looking into it but never done it.
I own the next hot stock- VTSAX

SimonJester
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Re: Hard Money Loans

Post by SimonJester » Wed Jul 22, 2015 8:03 am

The point I was making if this is a successful flipper who has mad a ton of cash of their deals they shouldn't need your money any more.

There is a lot that can go wrong and the inventors to take all the risk. The house next door to me was flipped and it sat on the market for almost a year while the flipper slowly lowered the asking price. I believe he lost money on that deal.

You only get your money back and interest when the house sells right? If there is a first position mortgage on the property guess who will get paid and who will not should the house not sell...
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

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Re: Hard Money Loans

Post by denovo » Wed Jul 22, 2015 9:14 am

"“More money has been lost reaching for yield than at the point of a gun.” –Raymond DeVoe, Jr.
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indexonlyplease
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Re: Hard Money Loans

Post by indexonlyplease » Thu Jul 23, 2015 3:03 pm

Good information.

Something I will stay away from because I do believe in knowing what you are investing in, and I don't understand this type of investment.



Thanks Again,


Cliff

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Re: Hard Money Loans

Post by astrohip » Thu Jul 23, 2015 3:14 pm

indexonlyplease wrote:Something I will stay away from because I do believe in knowing what you are investing in, and I don't understand this type of investment.
Absolutely! Being smart enough to realize one doesn't understand an investment... well, that's most of the battle won!

Additionally, investments like this should only be made with money one can afford to lose. Great reward, significantly greater chance of problems.
"Happiness is not about doing, it’s about being." - R Branson

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indexonlyplease
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Re: Hard Money Loans

Post by indexonlyplease » Tue Aug 04, 2015 4:02 pm

abuss368 wrote:
indexonlyplease wrote:Looking for some advice on being a hard money lender. Anyone lending now or has advice on the topic.

This is money in my savings account and nothing to do with current investments in the market.


Cliff
Hi Cliff,

I have read many of your posts recently. You are asking very good questions. I would encourage you to simply invest in Total Bond Index. This is considered your "loan" money.

In the road ahead, you will be thankful for the return for the level of risks and most of all the simplicity.

Jack Bogle has often said "Simplicity is the master key to financial success!".

Thanks,

randomguy
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Re: Hard Money Loans

Post by randomguy » Tue Aug 04, 2015 4:41 pm

SimonJester wrote:The point I was making if this is a successful flipper who has mad a ton of cash of their deals they shouldn't need your money any more.

There is a lot that can go wrong and the inventors to take all the risk. The house next door to me was flipped and it sat on the market for almost a year while the flipper slowly lowered the asking price. I believe he lost money on that deal.

You only get your money back and interest when the house sells right? If there is a first position mortgage on the property guess who will get paid and who will not should the house not sell...
There are different levels of sucess. If you need 1 million dollars (you have 4+ houses in the pipleline at all times) and you are making 500k/yr (i.e. pretty good money), it will take you 5+ years til you don't need the hard money lender.

And yeah they are risky. Sure you end up owning the house at a discount if the flipper defaults but you also end up with a house that is unlikely to be in saleable condition.

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sperry8
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Re: Hard Money Loans

Post by sperry8 » Wed Sep 11, 2019 10:49 am

Meg77 wrote:
Tue Jul 21, 2015 3:23 pm

For the record you can finance more conservative deals and charge a bit less in interest. I've lent money for private mortgages that were well collateralized with personal guarantees attached for 5%-7% with no origination fee. Easy money (as long as you don't have to foreclose...). My dad is seller-financing his condo to a lady who wants to buy but just switched jobs and can't get a mortgage yet without 2 years of history. He'll make 5%. My mom did the same when she sold her house to some old students of hers who had good jobs but bad credit.

It's hard to find these deals I think, but if you can they aren't really that risky in my view. Worst case you get the property back. So as long as there is some equity you are covered (unless you live in a state where it is costly and takes forever to foreclose).
Reviving an old post because I too have an oppty like the one you describe above. I have done one deal with a borrower at 5.5% interest for a 30 year loan. Well collateralized, first lien on deed, and no pre-pay allowed for first 5 years.

I have a 2nd oppty with the same rates and terms, but am wondering... is 5.5% locked up (potentially) for 30 years a wise move? In the current environment I'd say unequivocally yes. But who knows what rates do 10-15 years out? I think of this money as my bond/cash money. So I'm not chasing stock like returns, but rather bond like returns. Even risky high-yield corps don't return 5.5% (today at least). Any reason this would be a poor return over a 30 year period?
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fareastwarriors
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Re: Hard Money Loans

Post by fareastwarriors » Wed Sep 11, 2019 1:01 pm

sperry8 wrote:
Wed Sep 11, 2019 10:49 am
Meg77 wrote:
Tue Jul 21, 2015 3:23 pm

For the record you can finance more conservative deals and charge a bit less in interest. I've lent money for private mortgages that were well collateralized with personal guarantees attached for 5%-7% with no origination fee. Easy money (as long as you don't have to foreclose...). My dad is seller-financing his condo to a lady who wants to buy but just switched jobs and can't get a mortgage yet without 2 years of history. He'll make 5%. My mom did the same when she sold her house to some old students of hers who had good jobs but bad credit.

It's hard to find these deals I think, but if you can they aren't really that risky in my view. Worst case you get the property back. So as long as there is some equity you are covered (unless you live in a state where it is costly and takes forever to foreclose).
Reviving an old post because I too have an oppty like the one you describe above. I have done one deal with a borrower at 5.5% interest for a 30 year loan. Well collateralized, first lien on deed, and no pre-pay allowed for first 5 years.

I have a 2nd oppty with the same rates and terms, but am wondering... is 5.5% locked up (potentially) for 30 years a wise move? In the current environment I'd say unequivocally yes. But who knows what rates do 10-15 years out? I think of this money as my bond/cash money. So I'm not chasing stock like returns, but rather bond like returns. Even risky high-yield corps don't return 5.5% (today at least). Any reason this would be a poor return over a 30 year period?

How much down? Is the expectation that the borrower will refi with a traditional mortgage after 5 years? This seems more like a private mortgage loan than a short-term hard money loan.

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Meg77
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Re: Hard Money Loans

Post by Meg77 » Wed Sep 11, 2019 2:58 pm

sperry8 wrote:
Wed Sep 11, 2019 10:49 am
Meg77 wrote:
Tue Jul 21, 2015 3:23 pm

For the record you can finance more conservative deals and charge a bit less in interest. I've lent money for private mortgages that were well collateralized with personal guarantees attached for 5%-7% with no origination fee. Easy money (as long as you don't have to foreclose...). My dad is seller-financing his condo to a lady who wants to buy but just switched jobs and can't get a mortgage yet without 2 years of history. He'll make 5%. My mom did the same when she sold her house to some old students of hers who had good jobs but bad credit.

It's hard to find these deals I think, but if you can they aren't really that risky in my view. Worst case you get the property back. So as long as there is some equity you are covered (unless you live in a state where it is costly and takes forever to foreclose).
Reviving an old post because I too have an oppty like the one you describe above. I have done one deal with a borrower at 5.5% interest for a 30 year loan. Well collateralized, first lien on deed, and no pre-pay allowed for first 5 years.

I have a 2nd oppty with the same rates and terms, but am wondering... is 5.5% locked up (potentially) for 30 years a wise move? In the current environment I'd say unequivocally yes. But who knows what rates do 10-15 years out? I think of this money as my bond/cash money. So I'm not chasing stock like returns, but rather bond like returns. Even risky high-yield corps don't return 5.5% (today at least). Any reason this would be a poor return over a 30 year period?
I would never take interest rate risk longer than 5 or 7 years as an individual. MAYBE 10 years if the loan represents a small fraction of your assets so it won't move the needle much either way. You always have the option to renew it at maturity of course, but I would want an "out" sooner than later. What if rates go up? Just as recently as last year everyone was certain that would happen (and it was happening). Plus you don't want to have to deal with things like the borrower dying - or you passing and your heirs having to deal with assets like that. A lot can change in 30 years.
"An investment in knowledge pays the best interest." - Benjamin Franklin

GibsonL6s
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Re: Hard Money Loans

Post by GibsonL6s » Wed Sep 11, 2019 3:42 pm

indexonlyplease wrote:
Mon Jul 20, 2015 6:46 pm
The hard money loans I am talking about are for investors flipping property. They put 25% up front when they purchase the property at auction. Then after they rehab, and sell. I get my money back. It pays 14% interest per month plus 2 points up front. I have a mortgage on the property they own. If they defult then I get the property at a 25% discount plus the money they invested to fix the property.


Yes, I do agree it is a risk and not sure I will do. This is cash just sitting in savings. I am really hesitant because it is more painful to lose money then make money. As they say.

Also, I am talking about only one person that a friend of mine has been lending to for one year.


Thanks for input,

Cliff
I was in this business for many years in a previous life and have lots of stories. The types of deals you are describing above are the deals I NEVER did. The last thing you want to foreclose on is a partially finished property. Most of these deals are people trying to convince the lender that their 100% loan to cost deal is only 70% of completed value and they have no money in the deal.

I only lent on completed properties with sufficient equity where the borrower had credit or income issues or my favorite scenario was just in a hurry and couldn't wait for a bank. Ideally, there is enough equity that when the borrower gets into trouble, another hard money lender still sees enough equity to make another loan.

Also, most investors in hard money loan loose their money due to fraud not bad deals. They simply get defrauded by shady operators who service their loans.

IF you are going to make these types of loans through a broker who originates the loans, make sure you only fund your money directly to a third party escrow or title company and I would suggest finding your own loan servicer that you trust with sufficient E&O and fidelity coverage in place.

Good luck

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sperry8
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Re: Hard Money Loans

Post by sperry8 » Wed Sep 11, 2019 4:36 pm

fareastwarriors wrote:
Wed Sep 11, 2019 1:01 pm

How much down? Is the expectation that the borrower will refi with a traditional mortgage after 5 years? This seems more like a private mortgage loan than a short-term hard money loan.
Yes, this is/would be a private mortgage loan.
Meg77 wrote:
Wed Sep 11, 2019 2:58 pm
sperry8 wrote:
Wed Sep 11, 2019 10:49 am
Meg77 wrote:
Tue Jul 21, 2015 3:23 pm

For the record you can finance more conservative deals and charge a bit less in interest. I've lent money for private mortgages that were well collateralized with personal guarantees attached for 5%-7% with no origination fee. Easy money (as long as you don't have to foreclose...). My dad is seller-financing his condo to a lady who wants to buy but just switched jobs and can't get a mortgage yet without 2 years of history. He'll make 5%. My mom did the same when she sold her house to some old students of hers who had good jobs but bad credit.

It's hard to find these deals I think, but if you can they aren't really that risky in my view. Worst case you get the property back. So as long as there is some equity you are covered (unless you live in a state where it is costly and takes forever to foreclose).
Reviving an old post because I too have an oppty like the one you describe above. I have done one deal with a borrower at 5.5% interest for a 30 year loan. Well collateralized, first lien on deed, and no pre-pay allowed for first 5 years.

I have a 2nd oppty with the same rates and terms, but am wondering... is 5.5% locked up (potentially) for 30 years a wise move? In the current environment I'd say unequivocally yes. But who knows what rates do 10-15 years out? I think of this money as my bond/cash money. So I'm not chasing stock like returns, but rather bond like returns. Even risky high-yield corps don't return 5.5% (today at least). Any reason this would be a poor return over a 30 year period?
I would never take interest rate risk longer than 5 or 7 years as an individual. MAYBE 10 years if the loan represents a small fraction of your assets so it won't move the needle much either way. You always have the option to renew it at maturity of course, but I would want an "out" sooner than later. What if rates go up? Just as recently as last year everyone was certain that would happen (and it was happening). Plus you don't want to have to deal with things like the borrower dying - or you passing and your heirs having to deal with assets like that. A lot can change in 30 years.
Thanks for your take. I looked at this like a 30 yr collateralized bond with a 5.5% coupon (Corp America incl Apple, Deere and United are selling 30 yr bonds at 3% or below). Can't find this 5.5% return anywhere (today) so seemed like a good deal. The mortgagee would like re-fi at some point unless of course rates shot up after 5 years and he figured he was in a good deal. The initial mortgage was <5% of my total assets. The new mortgage I'm considering would bring up the total to ~13%. In my personal case I live off my assets and spend well less than 5.5% of my assets annually... so it seemed to me that locking in said rate even at 30 years was a good idea from my side.

So you're saying that perhaps I go back to him and offer a 5 or 7 (or 10) year fixed mortgage with an optional ARM for the remainder or an optional fixed rate for the remainder? Perhaps allowing me/him to revisit the rates then? If I don't want to renew I don't have to and he can re-fi or find another lender then?

On the flip side of that option, if rates stay down I'd potentially lose the revenue stream of a 5.5% coupon that I may want if rates stay low or go negative. Although in such a case he has the option of getting out at any time post 5 years while I'm stuck for 30 (so in reality if rates do stay this low he'll likely take his out in just over 5 years anyway).
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latesaver
Posts: 171
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Re: Hard Money Loans

Post by latesaver » Wed Sep 11, 2019 7:13 pm

indexonlyplease wrote:
Mon Jul 20, 2015 7:28 am
Looking for some advice on being a hard money lender. Anyone lending now or has advice on the topic.

This is money in my savings account and nothing to do with current investments in the market.


Cliff
My company invested a lot of $ into a hard money lending fund. They did well for us but it is not for the faint of heart. If your moniker ("indexonlyplease") is indicative of your persona, don't go near it.

renue74
Posts: 1683
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Re: Hard Money Loans

Post by renue74 » Wed Sep 11, 2019 9:49 pm

I have 2 seller financed notes. One for a $290K office condo. Buyer put down $40K and the note is a 30 year mortgage at 7.5%. The other is a $65K property where the buyer put down $5K with a 15 year mortgage at 9.5%.

Both have paid well and I service my own notes with the help of my accountant.

Both properties are worth enough to cover a potential foreclosure.

It's just another way to diversify. I have rentals, an airbnb, and a couple notes.

Pudge
Posts: 19
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Re: Hard Money Loans

Post by Pudge » Thu Sep 12, 2019 9:27 pm

I have been lending to commercial borrowers my entire career. What I would tell you is that the learning curve is steep. I still learn new nuances every day. Laws change. Real Estate markets change. Regulations change.

If you are really interested in the lending business, whether residential or commercial, I would advise you to take a couple of years and work for someone in that business so you can learn more.

One of the biggest challenges in lending is assessing risk. Not just the risk related to the borrower, but risks related to other areas - such as competitor risk, industry risk, collateral risk, cash flow risk, regulatory risk, and on and on. Deals like you are describing can put you underwater fast if you don't mitigate your risk and understand up front what the levers and barriers are.

You have to go into the transaction and mitigate against what happens when it all falls apart. And you can rest assured that everything that can go wrong, probably will. If you don't explore all of those angles as to what can go wrong, then you are jeopardizing your investment.

And some of the angles are, frankly, weird. Like the historic commission decides that this home has some sort of historic value, and so they want to restrict what kind of changes can be made. Or the local building code commission changes supervisors, and what was once acceptable, no longer is. Or you get the letter in the mail from the borrower's attorney, stating that you did such and such wrong and now they want to sue you. You get the drift.

You can really only learn a lot of this by doing it yourself, and experience. So before you invest one dime of your own money, take some time to work in the industry to start learning the subtle nuances. There is good money to be made, but you have to know what you are doing. And you can get absolutely clobbered if you don't.

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