Who Uses Hard Money, And Why? 10 Hard Money Borrower Scenarios

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There seems to be a shroud of mystery associated with Hard Money. One of our core principles at Glassridge is total transparency and as such, I will now shed some light on just exactly what Hard Money is, who uses Hard Money, and why, by highlighting 10 Hard Money borrower situations.

Table Of Contents

1. Fix & Flip Financing

Banks generally aren’t going to touch fix & flips, but these are one of the most profitable investment strategies in many of today’s hottest markets. Hard money is the best (and usually the only) choice.

2. Borrowers Who Need to Close Fast

Fast closing is one of hard money’s claims to fame. A hard money lender that can’t close fast won’t be in business for long. Chances are good: your hard money lender will close faster than your bank (especially if you’re using a nationwide bank or lender, who will likely need to seek approval from a central branch office before closing).

3. Single Property & Portfolio Cash Out Refinancing

This technique is useful especially for properties where you have very high equity (low LTV), and is particularly useful if you want to refinance multiple loans on multiple properties within your portfolio into a single blanket portfolio hard money loan.

4. Foreign Nationals & Foreign Corporations

This one is pretty straightforward, in a nutshell: banks almost will never lend to these Borrowers. At Glassridge we work with direct lenders who specialize in foreign nationals & foreign corporations. This is another scenario where hard money is the best (and usually the only) choice.

5. Borrowers Who Prefer Less Documents

If a Borrower doesn’t want to have to go through submitting things like:

  • income verification,
  • submission of 3+ years of tax records,
  • credit & background checks,
  • and much more…

then hard money is again the only way to go. Indeed, some of our direct lenders can close with as little as a Name (and ID), Property Address(es), and Bank Statements.

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6. Rental Property Purchases

Perhaps an Investor is looking for a long-term (up to 30 year) hard money loan on a move-in ready rental property (perhaps one that is already fully rented). Or maybe they're looking for a short-term (12 - 18 month) loan to rehab a property, increase its value, move in a renter, then refinance with a traditional bank loan. Either way, hard money loans can be a useful tool when working to build a rental property portfolio.

7. Investors Who Have Reached The Maximum Number Of Traditional Mortgages

In their Selling Guide, (page 272) Fannie Mae sets limits on how many mortgages the banks can loan to an individual on 1 to 4-unit buildings. Above 4 units is not eligible for Fannie Mae underwriting / securitization (so these are much more risky for banks).
Even the max can be confusing, because it depends on several factors such as:

  • Borrower’s reserves available.
  • Whether the multiple mortgages are for investment properties or multiple personal residences.
  • Types of financing & underwriting methods on the different properties.

Essentially, what we have seen, is that it tends to be difficult to still get traditional mortgages if a borrower already has 4 - 10+ investment units financed (whether that is 10 single family homes, or 2 4-plexes and a duplex).

8. Investors Who Want To Employ Higher Leverage On Riskier Real Estate Investments

Hard money loans can be especially profitable for experienced flippers, property managers, real estate agents and brokers, and construction teams. That’s because these real estate industry insiders can more effectively analyze deal opportunities on the ground, and can afford to pay slightly higher rates to get 70 - 90%+ LTV including rehab funds.

9. Corporations and LLC’s

Similar to foreign nationals and foreign corporations: properties and portfolios to be owned by Corporations & LLCs will have a completely different bank funding process (while still probably leaving the owners on the hook as personal guarantors anyway).For Investors who want to enjoy the liability protection, tax benefits, and insulation offered by owning real estate through a Corporation, often hard money can be one of the best (and sometimes only) choices.

10. Real Estate Partnership Buyouts (Especially on Portfolios Held in Multiple Corporations)

Good luck trying to take your complex multi-property, multi-corporation partnership buyout loan request to a traditional bank. To put it simply: they won't go anywhere near these. Hard money lenders are happy to look at your unique situation, and even to custom-tailor a loan package, rate quote, and terms to make sure your deal can get done.
If you are planning to buyout a partner on a single or multi-property portfolio, hard money lenders can not only help finance you, but help you navigate the process in the most efficient and profitable way.

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