Gyroscopic Investing

anyone have experience, good or otherwise, of "hard money" lending?

What is that?

I don't think I have any experience with it, but I can't be sure until I know what it is.

Is that when you borrow money to your brother in law, as hard as it may be?

http://www.bankrate.com/brm/news/mtg/20000831.asp

this article introduces the idea

I have a buddy that did a few rehabs with hard money before he had his own cash.  When done right it works for everyone.  For the borrower, you get access to capital to get a deal done that otherwise wouldn't be funded.  For the lender, you get amazing returns for risk that can be managed pretty well.

At least for rehabbing, typical rate can be anywhere from 14-18%, 65%LTV acquisition with draws to the contractor.  The real juice is in the points.  I think it was around 5-6pts to originate the loan.  The loan gets collateralized by the property so the risk to the lender is mitigated.  From what I've seen, most hard money lenders are local because they need to know the local market pretty well, especially if they need to take possession of a property.  If you know what you are doing, though, I'm sure it could be a cash cow.

It's been a while, but I've done my fair share of rehabbing houses and lending on manufactured homes (not "hard money", but similar risk profile) over the years and it can be very profitable.  Wonk gave a nice overview of hard money.

Here are a few things to consider before making such a loan:

• There may be lender licensing requirements - depends on the state in which you're operating.  This area of licensing has really grown in the past 5 to 10 years.
• What's your plan if the rehabber defaults?  You ready to foreclose?  When/if you get the property back, what are you going to do with it?  You ready to become a rehabber yourself?
• Realize you will probably be lending to novices (who else pays 18%???) that may not be all that good at evaluating "as is" property values, how much it will cost to rehab, or how much the property will eventually sell for... you have to know the market as well or better than they do.
• You have to understand what type of insurance is needed for vacant properties and that it's in place continuously.  A regular landlord or homeowner policy won't cut it.

You have to run through the likely good and bad outcomes of making the loan and be ready to act quickly.  Most of the hard money lenders I've met have been rehabbers first, lenders second.  They are ready to take over at a moments notice when a rehab job goes south. Hard money lending is not a passive activity.

You might want to lurk around creonline.com and perhaps join a local real estate investor group to see what kind of people you'll be working with and get hold a good title company/attorney that can draw up the docs and do closings.  None of this is meant to discourage you, just letting you know that there may be more to it than meets the eye at first.

moda0306 wrote: Is that when you borrow money to your brother in law, as hard as it may be?

I've been meaning to ask this for a while: when you say "borrow money to /x/", is that a special form that I don't know about, or is that just your idiosyncrasy?  I'm still getting used to "loan" as a verb (instead of lend), although that seems to be pretty common these days.

Lend money... not borrow... you are correct.