Understanding Private / Hard Money Lenders

In a previous post, I started to explain how Hard Money lenders see the wolrd. The more they are understood the more likely a financing will be approved. There are a number of miss appreciation, miss understanding about Hard Money lender one of th most famous one is that they will be happy to take over a property. In general this is not the case and is a complete miss understanding of a Hard Money or Private Money lender's objectives. As with everything, there are always exceptions but in 95% of the case Hard Money lenders do not want to take over a property.

Hard / Private Money lenders are either individuals and/or organizations who provide real estate financing to borrowers who can not secure the funds through conventional channels. Hard Money lenders are interested in getting return on their investment based on the rate they are receiving. They wants the loans to be pay back so that they can make new ones. In general they prefer to invest in loans throught Trust Deeds that will be paid back within 6 months to 24 months.

Hard Money lenders invest based on property values. Risk valuation is made on their understanding of what the real estate market is doing, the likelyhood a borrower is going to default and loan amount vs the property value. They are sceptical of appraisals and valuations they have not ordered.

A Hard Money lenders know that it may have to take over a property. It is part of the risk that they are taking, however, they don's want to because the capital is not active during that time. If the take over / foreclosure of the property goes smoothly and there is enough equity, the lender will recoup its investment plus fees and missed payments. If the take over / foreclosure does not go smoothly it can become very expensive for the lenders. In case a profit is generated from the sale most of it will get back to the owner who was foreclosed. If the property could not be sold the lenders need to start managing it. Hard Money lenders are not in the property management business.