PURCHASE
REFINANCE
What are private mortgages/hard money loans?
What interest rate returns can I expect?
Why not just borrower from the bank?
What are the benefits of hard money loans?
Can I see sample hard money loans?
How safe are hard money loans?
What are the risks of hard money loans?
How does PRIVATEMONEYMEN.COM minimize lender risk?
How can I participate in hard money lending?
Can I lend from my IRA?
Why should I work with PRIVATEMONEYMEN.COM?
How do I get started investing in private mortgages?
A hard money/private mortgage loan is a secured debt obligation that produces a regular, predictable income stream to the investor with all the security, protection and recourse that a mortgage lien can provide. To put it more simply, it is a short-term loan made to a real estate investor secured by the value of his/her real property as collateral for the loan. Unlike stocks or other equity investments, the security in a hard money loan is the actual bricks and mortar of the real estate, further backed by title and hazard insurance.
Many private mortgage loans are also secured by personal guarantees from the borrowers, adding another layer of protection for the investor. You will hear many common terms when people discuss private mortgages: hard money loans, private notes, trust deed investing, deed of trust notes, private mortgages, etc.. They all mean the same thing – a private lender is lending money against real estate and getting a promissory note and mortgage lien against the property and, usually, at a higher than average interest rate return.
WHY WOULD A BORROWER PAY SUCH HIGH INTEREST RATES FOR A HARD MONEY LOAN? WHY WOULDN’T HE OR SHE JUST GO TO A BANK?
This is a very common question among new investors to the hard money world. They can’t imagine why anyone in his or her right mind would accept such extreme loan terms to purchase or refinance real estate when there are hundreds, if not thousands, of banks ready, willing and able to lend money at 5-8%. There are many answers to this question, but here are some of the primary reasons:
1) Time crunch – Timing is everything in real estate. Property investors are constantly on the hunt for good real estate deals, and in order to find that perfect deal, these investors use multiple marketing strategies such as newspaper, television or radio ads, internet leads, direct marketing, or bird dogging. The investor must go through many bad deals to find a good one. Unfortunately, many of the most profitable deals come wrapped with a common theme – a motivated seller that must sell fast because he or she needs money quickly. Thus, the property investor cannot wait around for a conventional bank to perform underwriting. Because of the high profit margins in the deal, the investor is more than willing to “share the wealth.” Despite having good credit and the ability to borrower at lower interest rates, the investor recognizes that it is not the cost of the money that matters in these deals, but rather the timing and availability of the money. Private mortgages fill that void - money is made available at lightning speed, thus allowing the property investor to get in and out of the deal quickly, profitably, and with little hassle.
2) Banks hate unfinished properties – Most conventional lenders either will not lend on property that needs substantial work (and by that we mean more than paint and carpet), or will make it so difficult for the investor to borrower the money that the investor just gives up and goes to a marketplace better prepared to manage this type of loan – the hard money markets. Hard money lenders are the best option in these cases because they understand rehab projects and are accustomed to managing construction escrows and property inspections. And because most properties are local to the private mortgage lender, hard money lenders are best suited to protect the lender’s money in the event of default.
3) Borrowers need short-term lifelines – Some borrowers need short-term bridge financing to carry them through a difficult period. It could be to fend off creditors or free up some equity locked in their real estate for family needs. Sometimes it could be as simple as a borrower needing to use money to leverage into another hot real estate deal, but unable to secure bank financing because of negative credit marks, insufficient cash on-hand, etc.. If there is sufficient equity in the property and a proper exit strategy for the borrower, a hard money loan is a perfect solution.
Here are some of the primary benefits of hard money lending:
· Safety - Your money is secured by a mortgage lien, which is further protected by a title insurance and hazard insurance policy. House burns down – you get paid! Title problem – you get paid! Also, the amount borrowed will never be more than 70% of the “quick-sale” value of the property. This leaves a lot of equity in the property as a safety cushion in the event of default.
· An Investment You Can Touch – This is an attractive feature for investors. Stocks and bonds tumble all over the place and are controlled by some faceless “expert”. You can never really touch your investment. There is an inherent sense of stability people relate to tangible assets such as land and buildings. Values fluctuate, but not as wildly as stocks and bonds, thus there is less risk of losing your principal investment.
· Professional – The principals of PRIVATEMONEYMEN.COM are seasoned real estate professionals and only use other seasoned real estate professionals as third party vendors when conducting transactions. This adds another layer of safety and security for the investor.
· Completely Hands-Off - This can be a completely passive investment leaving more quality time for you and your enjoyment. You'll leave the particulars of underwriting, closing and servicing of the loan to the real estate professionals. With this type of investment, you won’t have to worry about midnight calls from tenants or lie awake wondering if your stock portfolio will crash the next day. You’ll also be able to monitor your real estate investments online 24/7 if you really want to watch your money grow.
· Compounding – Many “standard” investments such as high-yield CD’s compound one time per year. Our hard money model allows us to compound investor money sometimes up to 3 times per year, thus dramatically increasing investor ROI.
· Flexibility – You can choose when to invest and how much to invest.
· It’s Fun -- People like the idea of being a bank which, in essence, is what you’re doing. Why not make a fortune in real estate lending like banks do if you have the resources available to do it?
· Easy to Understand – You don’t need a PhD in puts, calls, options, candlestick charts, etc. to understand this investment model;
· Predictability – Your returns are not dependent on the whims or daily mood of the stock market. They are determined at the time the loan is written, so you don’t need to monitor charts or the daily news to know what your returns are going to be;
· Proven – This type of investing has been around longer than the stock market, longer than the