Hard money lenders have changed from the typical definition a few years back. In the past, loan sharks were often synonymous with hard money lenders. Part of the reality that backs that point of view was those lenders often loaned money to people they didn’t believe would succeed. When they would fail, the loan shark would move in and swipe up the collateral and reap the financial benefits.
Many hard money lenders of today are a different breed. They are sources of capital in the private sector that help real estate investors with their funding needs.
They are generally a more viable option of funding when traditional funding resources have passed on the opportunity.
Today’s hard money lenders have a better application process that help determine whether or not the property owner will secure the capital that they need. Lenders look at the real estate investment opportunity even more than the individuals FICO score or their personal wealth.
Banks require a higher credit rating than most HMLs do and with new investors, this is often times an issue. HMLs are also willing to evaluate the ROI based on the risk/reward of the individual investment opportunity and make appropriate decisions with that in mind.
Rooting for Success
Hard money lenders are rooting for the success of the borrowers. If the borrower does not have the experience or the other required resources to turn the investment opportunity into a success, the HMLs will not back them. The ‘loan sharks’ were the opposite.
More and more HMLs are utilizing software for assistance in decision making, the application process as well as monitoring the project as it progresses. As a technology company in the property management software space, I say, ‘It’s about time’. Good software is based on best practices and past experiences wrapped up in proven algorithms. It’s like taking a brain dump of past individual experts, past experiences, proven processes and packaging it up and handing it to the next generation of real estate investors.
Cost of Capital
The good news is, the cost of this capital has declined significantly. Interest rates have dropped by as much as 50% in some areas. This opens the market to more investors looking to fund their projects.
Finding a good HML is important. Don’t just think of them as your money bag. The right HML will be able to provide you with advice along the way, including vendor selection. They understand the challenges of real estate investing and will provide support for any challenges that arise. Think of the new HMLs a little more like a business partner then the proverbial loan sharks of yesteryear.
PropertyZar is a real estate technology company specifically in the web-based property management software for owners and professional property managers. Read more Top Property Management Blogs. Learn more www.PropertyZar.com