Hard money lending lending is a mutual beneficial business transaction, that helps lenders save money for retirement and investors get the funding they need to buy investment property. While hard money lending has had a negative connotation in the past and considered “sub-prime lending” this is not usually the case. Private lending is only sub-prime when the lender “bails out” someone facing foreclosure, offering them money with an impossibly high interest rate. Typically hard money lenders work hand in hand with real estate investors, not people trying to save their personal property from foreclosure.
The great thing about hard money lending is that it’s passive. People who have enough cash reserve are able to make money very easily and with little effort by temporarily loaning that money to someone else for profit. It’s a misconception that you need to have a lot of money to be a hard money lender- you can make small homes on an individual basis, or pool your money with others to make a larger home. Becuase you are not held to the same requirements and regulation as a traditional bank, you can structure your deals in a way that works for you.
You can be as strict or as lenient as you want when selecting who to lend to. Just remember that banks are a cheaper option for investors, and people won’t be coming to you for financing unless they have a compelling reason to. Frequently this reason is because their credit is imperfect or they don’t have proof of a steady income. While you shouldn’t loan money to someone you think is likely to default, hard money lending usually uses property as collateral in the deal. For example, if you loan money to an investor who uses that money to buy a house, and that investor stops paying, you get to take over ownership of the house which usually has at least 30% built in equity.
Related posts: