How Hard Money Lenders Can Help Real Estate Investors

The recession since 2007 in the United States has created somewhat of a precarious market for real estate.  What we have been witnessing with the collapse of the housing market is the bursting of a Federal Reserve induced bubble in real estate.  Excessive money creation by the Fed in combination with certain government policies that directed that money into housing are the root cause of all this turmoil in real estate.  And now with the recession continuing on into 2012 it is not only housing that is being affected but commercial real estate as well. Of course banks are hesitant to lend in such a risky environment.

The interest rates that they commonly charge for loans are insufficient to compensate for the increased risk they would be taking on by lending.  And because of the need to maintain a reputation for being very sound and conservative with their loans, there are many properties that investors would like to get loans for that banks just simply will not entertain. But hard money lenders offer a good alternative option for real estate investors who need funding.  Not only will they grant loans for properties that banks will not, they can do it much more quickly.

As anyone who has applied for a mortgage from a bank knows, it can take over a month to get the actual funding.  Not so with a hard money lender.  Ten to fifteen days is typical and sometimes they can originate a loan in a week or even less. Another good thing about hard money lenders is that they often are not really concerned about the credit rating of their borrowers.  Generally they are more concerned about the value of the collateral which will be used to back up the loan, as well as the borrower’s actual ability to pay back the loan.  So they will usually want a good look at a potential borrower’s finances including revenue that will be coming in from the investment property.

As the lender is an investor himself he will want to make sure that the borrower’s investment is sound and will likely make money. Typically hard money lending is much more flexible than the financing one could expect to get from a conventional bank.  A hard money lender will want to work with investors by structuring a loan that is very specialized for their needs.  So loan terms are very flexible.  Often the loan will serve as a bridge loan, meaning that it is just being used as temporary funding until longer term financing can be secured.  And most hard money loans are for short term durations.  Many of them are for a year or less with five years being about the maximum. We are likely to see continued volatility in real estate, both commercial and residential, in the coming years because of the misguided monetary policy being pursued by the Fed.

But even with an uncertain real estate market and tight lending by banks, hard money lenders will continue to empower real estate investors to make money by capitalizing on good deals that will inevitably arise in a volatile market.

Information about private money lenders can also be found at Stephen’s website.  Stephen Otto is an online entrepreneur with interests in political economy and the Austrian school of economics.

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