FAQ | Hard Money Lending

 

FAQ |Hard Money Lending

Learn how hard money lending works, how you can invest in hard money loans, and the risks and rewards of making hard money loans

By Jan Brzeski
Managing Director and Chief Investment Officer, Arixa Capital

What is Hard Money Lending?

  • A hard money lender is an investor who makes loans secured by real estate and usually lends on a short-term basis to real estate investors or developers. The investors/developers use the money to purchase and then renovate or develop properties. Upon completion, the investors/developers sell the properties and repay the loan.

  • Most hard money loans are backed by real property as collateral, but some are not real estate backed. The most notable exceptions occur when a hard money loan is backed by another loan from a third-party institution.

  • These are all different names for the same thing. Here’s a more complete list of alternative names for hard money loans:

    • Private money loans (a term we’ll use throughout this FAQ)

    • Bridge loans (another term we’ll use in this FAQ)

    • Short-term loans

    • Transitional loans

    • Asset-based loans

    • Rescue loans

  • Hard money lenders, also known as private money lenders, differ from bank lenders in several ways.

    Hard money lenders often fund loans more quickly and have fewer requirements than banks do. Indeed, hard money lenders are sometimes called asset-based lenders because they focus mostly on the asset being used as collateral for the loan, whereas banks usually require strong collateral as well as excellent credit and cash flow from the borrower.

    Hard money lenders are willing to foreclose on and take back the underlying property if necessary to satisfy the loan. Bank lenders typically look at the borrower to be able to pay back the underlying loan from the borrower’s income, whereas hard money lenders are comfortable looking to a sale or refinance of the property as the method of repayment.

    We explore the differences between hard money lenders and banks in more depth in a later section of this FAQ.

  • Hard money lenders exist because many real estate investors/developers need a lender who can provide a quick response and quick funding. Otherwise, the investor/developer may not be able to secure a deal on the property they want to purchase.

    Banks and other institutional lenders usually offer lower interest rates than private money lenders do, but they don’t provide the fast decisions and quick access to capital that real estate investors/developers need to close deals and run their businesses.

  • The “hard” in hard money lending refers to the higher price charged to borrowers both in terms of interest rates and higher loan origination fees.

    Interest rates for hard money loans vary based on market interest rates, and origination fees are often around 2 percent of the loan amount, versus 1 percent or less for a typical bank loan.

When to get a hard money loan

  • In our experience, even investors/developers with strong financial statements and access to bank credit frequently choose to use private money loans.

    Why? Because the investor/developer has an opportunity to quickly generate substantial profit or savings, and the costs that come with a hard money loan (higher interest, origination fees) are small relative to the anticipated profit.

    Many property developers also realize that getting a bank loan will usually take longer than getting a hard money loan, and that extra time could prevent them from closing a deal that could make them a healthy profit. Even if the extra time involved in getting a bank loan doesn’t prevent a deal from happening, it could delay the purchase process and ultimately delay the sale that yields the profit.

    Situations where private money loans make the most sense include those where the borrower:

    • Requires a quick closing and banks cannot meet the deadline.

    • Has more good real estate investment or property development opportunities than cash.

    • Wants to focus on finding new opportunities rather than spending time raising equity or debt from many different smaller investors.

    • Lacks the patience or time to deal with the bureaucracy of securing a loan from a bank.

    • Has an excellent investment opportunity, but does not have sufficient financial strength to get a bank loan.

    • Has a bank line of credit but needs a larger loan than the existing bank line allows.

  • Some hard money lenders do focus on distressed situations, such as when the borrower has another loan in default and needs to refinance. This is particularly true for commercial bridge loans.

    In the single family residential arena, most hard money lenders shy away from distressed borrowers who are owner-occupants. Lenders are not eager to foreclose on a borrower living in his or her own house.

    Furthermore, regulations make foreclosing on an owner-occupied property much more time consuming and difficult than foreclosing on an investor-owned property. As a result, the hard money lender could end up spending a substantial amount of time and money going through the foreclosure process, which would reduce or even eliminate any potential profit. That’s a risk most hard money lenders prefer to avoid.

  • Hard money lenders will lend on both commercial and residential properties, but many will not lend on owner-occupied residences due to higher thresholds of scrutiny required by law. Commercial properties can include industrial buildings, shopping centers, and office buildings. Some, but not all, hard money lenders will also invest in raw land slated for development and even hotels.

    Vacation homes (single family residences), even if not a primary residence, are considered owner occupied, so many hard money lenders may not finance them. Ultimately, though, the decision will depend on that lender’s criteria regarding owner-occupied home loans.

The pros and cons of hard money loans

  • Description text goes here

  • For borrowers, private money loans offer a number of advantages over traditional bank financing including:

    • A simpler application process and quicker approval/disapproval decision.

    • Less scrutiny of the borrower’s personal financial situation, including income and historical tax returns.

    • Borrowers can spend less time seeking financing and instead concentrate on other aspects of their real estate investment or property development business.

    • Borrowers can avoid the inconvenience of being rejected by a bank.

    • Most hard money lenders do not expect perfect credit and substantial amounts of disposable income from borrowers. Instead, private money lenders typically focus on the merits of the specific deal under consideration.

    • Self-employment, which is common among real estate investors and developers, is not seen as unacceptable to private lenders, whereas many banks view self-employment negatively and strongly prefer lending to professionals with very steady income.

  • For borrowers, the disadvantages of seeking a hard money loan may include:

    • Hard money loans are more expensive than bank loans, with higher interest rates and origination fees.

    • The quality of hard money lenders varies substantially from one lender to another. Some private lenders are unscrupulous and may in fact have a business strategy of seeking out borrowers who are likely to default in order to foreclose on the underlying real estate.

    • Some private money lenders may collect non-refundable deposits without having the capital required to make the loan. They may either hope to find the capital once the loan is finalized or, in rare cases, they may simply aim to collect the deposit with no intention of funding the loan.

  • Borrowers that secure a private money loan face the following risks:

    • Risk of lost time if a lender does not perform by funding the loan.

    • Risk of lost deposit, if a deposit is required, and the lender does not ultimately make the loan.

    • Market risk and execution risk on the underlying project.

    • Risk of associating with a less than reputable lender.

    • Risk that the lender fails to fund the loan amount in a timely manner, possibly endangering a deal. (For example, money may not be placed into escrow by a predetermined deadline).

How to get a hard money loan

  • The best way to secure a hard money loan is to know or be referred to a reputable hard money lender. The prospective borrower can simply call and describe the nature of the project for which capital is desired. When presenting a project to a private lender, the borrower should be prepared to provide the following information:

    • Deadlines and dates which are critical to the transaction (for example, the closing date for a purchase if the borrower is seeking a purchase money loan).

    • The specific property address.

    • Whether the loan is for a property acquisition or refinancing of an existing loan.

    • The purchase price of the property.

    • The intended renovation budget.

    • The intended asking price for the property (assuming the project is going to be resold after renovation).

  • A variety of companies provide private money loans, with some specializing in commercial real estate, some residential real estate, and some investing in both categories.

    Major commercial banks often have bridge lending programs targeted at opportunities in the $20MM and greater loan size, while many privately operated funds specialize in the $10MM to $20MM range.

    At the $5MM and less loan size, there are mostly small regional operators. These lenders are often composed of real estate developers with sufficient cash liquidity that prefer to invest in short-term real estate loans rather than the stock or bond markets.

    Both private investors and funds operate in the residential space. A few funds that offer private money loans for single family homes include Arixa Capital Advisors, Lone Oak Fund, Genesis Capital, Athas Capital and Anchor Loans.

  • A prospective borrower can find hard money lenders by:

    • Attending real estate events held in your local area.

    • Asking other real estate investors.

    • Searching online.

    • Looking through industry publications.

    • Asking mortgage brokers to refer a lender.

    • Seeking referrals from real estate brokers and attorneys specializing in real estate transactions.

  • California is home to many leading bridge lenders. California has a tradition of private money borrowing and investing for two key reasons.

    First, the state is large and has a huge number of properties and developers. Second, California is a non-judicial foreclosure state. This means that if a borrower defaults, the lender can get control of the underlying property fairly quickly to get repaid as long as the home is not owner-occupied.

    In contrast, some states with a judicial foreclosure process are less appealing for private lenders because the foreclosure process can be very long and arduous, even if the home is not owner-occupied.

Documentation for hard money loans

  • Typical loan documents required for a hard money loan include a Note and a Deed of Trust.;

    Other documentation requirements vary but may include:

    • A personal guarantee from the borrower (sometimes non-recourse loans are issued without a personal guarantee).

    • Personal financial statements such as past tax returns and proof of income.

    • Assurance that the borrower has access to sufficient cash to perform any and all proposed property renovations.

  • The purpose of a Letter of Intent (LOI) for a hard money loan is to provide a quick means to be sure that both the prospective borrower and lender understand key elements of the deal. Although this document is not legally binding on either party, putting the prospective deal in writing helps avoid any miscommunication or misunderstandings.

  • Title insurance helps protect someone who has purchased real estate against another party making a claim challenging the ownership of the property and the seller’s right to enter into a transaction.

    The title insurance company will handle any issues that arise during the property sale, and if a competing claim of ownership is deemed legitimate, the title insurance company is responsible for payment of any fees to the claimant.

    Bridge lenders insist on being covered under title insurance in order to enjoy the same protection as the borrower.

  • A Mechanic’s Lien, also known as an artisan’s lien or materialmen’s lien, ensures contractors and subcontractors are paid for services rendered.

    Each state has its own rules for how Mechanic’s Liens work, but liens against a property typically prevent its sale. A title search will reveal liens to any prospective buyers.

    Here are two potential scenarios in which a Mechanic’s Lien could affect a real estate deal. A property owner fails to pay a general contractor for services rendered, and the contractor files a Mechanic’s Lien against the property. Or, the general contractor fails to pay subcontractors according to the terms of their agreements. The subcontractors could file a Mechanic’s Lien against the property.

    Title insurance does not provide any protection against these situations. Hard money lenders will protect against possible Mechanic’s Liens by making sure that if a loan includes a renovation budget, that all subcontractor and general contractor releases are properly executed before disbursing funds to a borrower.

What are the typical terms for a hard money loan?

  • Interest rates vary based on market conditions, and hard money lenders typically charge higher rates than banks do. In recent years, interest rates between 7.5 percent and 12 percent on a hard money loan have been considered standard.

    Additionally, origination fees can range from 1 to 3 points, with each point equaling one percent of the loan amount. Points above this range usually signal that there are numerous brokers involved in the transaction.

    If the borrower needs capital for a longer period of time, paying points on a longer-term loan may make more financial sense than incurring prepayment penalties. Many private money lenders include prepayment penalties in their terms and conditions in order to guarantee themselves a minimum number of months of interest on the loan principal.

    Borrowers should also be aware that extension options are possible on hard money loans and are a matter of negotiation with a lender.

  • Most hard money lenders that specialize in single family homes offer loans that are based on a fixed rate. For commercial properties, a floating rate is more common due to the longer term of maturity.

    Floating rate loans may have a lower initial rate, but the rate can quickly exceed that on a fixed-rate loan if interest rates rise during the term of the loan.

  • The fees usually associated with a private money loan will include origination fees of 1 to 2 points, possibly a deposit fee, plus an underwriting fee to ensure the loan conforms to necessary lender requirements.

    Some hard money lenders will try to make money by charging deposit fees for loans they don’t have enough capital to fund. These lenders may hope to acquire enough capital to fund the loan after collecting the deposit. Borrowers should do their due diligence and carefully evaluate potential private lenders to avoid these problems.

  • Whether or not hard money lenders require non-refundable deposits varies from one lender to another.

  • Prospective borrowers for a hard money loan should think carefully before paying a deposit to a lender. If the loan is for a single family home renovation, no deposit should be charged. However, for larger, more complex transactions with a lot of underwriting requirements, payment of a deposit is more warranted.

    A deposit, when charged, can vary from $1,000 to tens of thousands of dollars in total.

  • Hard money loans often require a personal guarantee and require first positioning as the lender of record, meaning the hard money loan takes precedence over other loans made against the property. However, some lenders are willing to make subordinate loans, also called junior loans, where another lender holds the primary mortgage.

  • The typical term or maturity for a hard money loan is 6 months to 3 years. Loans requiring greater than a 3-year maturity are usually outside the scope of private money financing.

    Single family home renovations tend to last from 6 to 12 months. A commercial shopping center renovation would likely take 2 to 3 years.

  • A borrower can negotiate the best rate for a hard money loan by having multiple bridge lenders willing to compete for the business. To do that, the prospective borrower needs to:

    • Be organized and have all necessary documentation ready for inspection.

    • Have a strong credit history.

    • Impress upon prospective lenders that the proposed project meets their needs and risk profile.

  • A borrower who defaults on a hard money loan risks having the lender foreclose on the property which was put up for collateral.

    Private lenders typically take several steps to try to avoid foreclosure. The lender may attempt to find out from the borrower the current status and disposition of the property. The lender may then try to work with the borrower to find an alternative to foreclosure.

    If the lender and borrower cannot find a solution, the lender will file a Notice of Default (if necessary) to trigger the legal foreclosure process.

  • Hard money lenders utilize two different measures to evaluate deals: loan-to-cost and loan-to-value..

    Loan-to-cost (LTC) is the cost of the property divided by the loan amount. Most private money lenders will not lend more than 75 percent of the cost of the property, but a 75 percent LTC is not a hard and fast rule. Risk tolerance depends on the lender.

    Loan-to-value (LTV) is the value of the property divided by the loan amount. Most hard money lenders prefer LTVs in the 60 to 65 percent range to ensure a sufficient margin of safety, but like LTC, this percentage varies by lender. Lenders may use the lesser of the LTC or LTV values to assess a loan, depending on when the property was purchased. For more recent purchases, lenders will look at what the borrower paid for the property.

  • Hard money lenders make lending decisions based on either a Loan-to-Cost (LTC) ratio or Loan-to-Value (LTV) ratio. These ratios measure the risk of the loan by comparing the loan amount to the cost and value of the underlying real estate, respectively.

  • Hard money lenders have different requirements for the due diligence process, but generally speaking, origination of commercial loans will require the most comprehensive list.

    Residential loans may require:

    • An appraisal from an outside party.

    • A property inspection report.

    • A geology inspection (particularly based on the location of the structure).

    • The borrower’s financial records.

    An in-person inspection of the property is nearly always part of the decision-making process, which is why private money lenders tend to have a localized focus.

  • It generally takes a hard money lender 30 days or less to fund a loan, and some private lenders can fund loans in two weeks or less.

  • Owner-occupied private money loans are different from other types, due to state laws requiring extensive documentation intended to protect the borrower from predatory lenders. Many hard money lenders are not set up for compliance in this regard and therefore will not make loans for owner-occupied residential properties.

  • Borrowers can secure a hard money loan even if another loan is in place, but doing so requires one of two things. The borrower can get a new hard money mortgage to replace the existing first mortgage, or the borrower can qualify for a subordinate junior loan which leaves the first mortgage in place.

The difference between hard money lenders and banks

  • Hard money lenders are typically regulated at the state level by the Department of Real Estate, as at least one person associated with hard money lending must have a valid Real Estate Broker License. Additional licensing requirements may be required on a state-by-state basis.

    Cross-state transactions fall under the jurisdiction of both states involved and are subject to each state’s respective requirements.

    Securities licenses are usually not required for private money lending unless a loan is classified as a securities offering, which can happen when the loan is syndicated to multiple investors.

  • Hard money lenders are licensed differently with less regulatory scrutiny than traditional banks and can look at the merits of a loan more so than a bank, which must meet certain non-negotiable criteria to issue a loan.

  • It is essential for borrowers to ascertain whether a private money lender is reputable to avoid disappointments, wasted time, and lost opportunities. A borrower can research a prospective lender using the following techniques:

    • Ask for references from clients/borrowers and mortgage brokers; talk to the references.

    • Consider working with a local mortgage broker who has done transactions with that lender.

    • Confirm that the lender has a valid Real Estate Broker License.

    • Determine whether any complaints have been filed against the Real Estate Broker License.

    • Consider checking with the Better Business Bureau (BBB).

    • Find out what industry events the lender attends and ask people at the event about the lender’s reputation.

  • Borrowers can move on to working with bank lenders, but many real estate developers/investors prefer to work with bridge lenders and do so even when they can get funding from a bank. Developers often need to move quickly to close attractive deals and often cannot get fast decisions from banks. These developers are willing to pay a premium to private lenders to get the funding they need to close deals that are essential for their business.

    Some borrowers work with hard money lenders because they have a recent credit issue, such as a foreclosure or bankruptcy, and borrow from a private lender until that credit issue no longer appears on their report. Then, when the borrower qualifies for bank financing, they choose to get a bank loan.

    A borrower may also choose to get a private money loan for a project, pay it off, and then use this success to demonstrate performance and creditworthiness to a bank.

    Borrowing from a hard money lender can forge a path to receiving future credit because successfully paying back the private money loan builds a track record. The hard money loan can also enhance the borrower’s financial strength, assuming the underlying investment for which the loan is used proves successful.

  • Banks can offer lower interest rates than hard money lenders because banks can fund loans with retail deposits on which they pay minimal interest rates. Hard money lenders fund loans with private capital, which has higher expectations. For example, in 2022, most bank depositors earn 1 percent or less on their deposits while most investors in private money loans expect 6 to 7 percent or more, to compensate for the greater risk of loss of principal.

Is hard money lending a good investment?

  • The answer depends on who is making the loan.

    Some lenders are actually brokers who provide a matching service between borrowers and investors. Brokers are paid up front and typically do not invest in the loans they broker. The main risk brokers carry is to their reputation if something goes wrong with a deal they arranged.

    Other lenders originate loans and hold them in a portfolio until maturity. Known as balance sheet lenders, these hard money lenders make money by charging borrowers interest and origination fees. They also carry the risk that the borrower will not repay the loan, which would damage their financial situation, not just their reputation.

  • Hard money lending can be profitable, but as with any business, the chances of profitability increase when certain conditions are met. Hard money lending is more likely to be profitable when:

    • The lender understands the real estate market in the areas where it operates.

    • The lender can effectively identify, underwrite, manage, and service loans.

    • The lender can effectively manage risk, including the risk of foreclosure.

    • The lender has good access to capital to make loans.

    • The lender has a good reputation with borrowers based on a strong track record of providing excellent service.

    • The lender has clear differentiators to set itself apart from competitors.

    • The lender can control its costs.

    Of course, not every private money lender is profitable. If you are interested in becoming a hard money lender, be sure to do your due diligence so you understand the business before putting any of your money on the line. Be sure you understand and follow any applicable regulations and requirements.

    If you invest in a hard money lending fund, check to ensure the fund complies with applicable regulations and requirements.

    If you decide to become a hard money lender, either directly or through a fund, be sure to understand the relevant revenues and costs, the two key drivers of profitability. Private money lenders earn revenues from interest charged on loans, origination fees, prepayment penalties, and late fees. Not all hard money lenders charge all these fees.

    Hard money lenders incur costs, including underwriting loans, servicing loans, reporting, marketing to borrowers and investors, and all the costs that come with running any business, such as paying for office space and utilities.

  • One excellent private money investment opportunity is investing in trust deeds. We explain more about trust deed investing below, and we have a separate FAQ dedicated entirely to trust deed investing.

    Another private money investment opportunity is to make hard money loans directly to borrowers. We explain this in more detail in a later section of this FAQ.

  • Hard money lenders use private capital to fund loans secured by real property. The business model is fairly straightforward. One or more investors provide capital to a borrower, usually through a fund or other entity that brokers the loan.

    The entity issuing or brokering the loan must charge the borrower enough to do two things: 1) pay the investors the return they are seeking and 2) retain enough to cover their own overhead and desired profit margin.

  • Hard money lenders will compete on:

    • Fees

    • Interest rates

    • Their reputation

    • Quality of service, which includes the ability to fund a deal quickly, the ability to be accessible to the borrower during the term of the loan and/or provide flexibility in case of unforeseen events, and the ability to respond to special borrower requests that may arise.

    Hard money lenders will compete on price, but the reputable firms tend to be close to each other in pricing due to the competitive nature of the market. Service is typically the greatest differentiator, along with the lender’s relationships, dependability, and ability to perform once a loan is agreed to.

  • Hard money lenders differ from one another in a number of ways, including:

    • Lending criteria such as loan-to-cost and loan-to value guidelines

    • The type of real estate on which they lend

    • Minimum and maximum loan size

    • The geographic region they serve

    • Their industry reputation

    • Level of service provided

Hard money lending investing: how to invest in hard money loans

  • If you would like to make hard money loans, you have three options:

    • Lend directly to borrowers on your own or in a group. You are responsible for identifying prospective borrowers, underwriting projects, funding and servicing the loans, and dealing with foreclosures if and when they occur.

    • Work with a broker to identify prospective borrowers on your own or in a group. Although you don’t have to identify prospective borrowers, you are still responsible for underwriting projects, funding and servicing the loans, and dealing with foreclosures if and when they occur.

    • Invest in a fund that makes hard money loans. You identify a reputable hard money lending fund, evaluate its strategy and track record, and invest. The fund manages all aspects of lending and pays you a regular return.

    Most people who take either of the first two routes have extensive experience in real estate, understand the market well, have the time and expertise to find, underwrite, and manage loans themselves, and have the resources to handle the risks that come with being a hard money lender.

    Investing in a fund that makes hard money loans is an excellent option for people who aren’t as knowledgeable about the real estate market and would prefer to have someone else — someone with extensive private money lending experience — identify, underwrite, and manage the loans.

    Investing in a hard money lending fund is not risk free, but a well-managed, reputable fund can offer consistent, attractive returns with limited risk. Note that many hard money lending funds can only accept investment from individuals who are designated as accredited investors by the Securities and Exchange Commission (SEC). Learn more about the accredited investor designation.

  • Private individuals with disposable income can invest in hard money loans through a process known as trust deed investing. Such investors may invest in individual loans or in a fund that manages a portfolio of loans to mitigate the risk associated with any single loan going into default.

  • Advantages of investing in hard money loans include reliable cash flow (in the form of quarterly or monthly distributions of interest) and risk mitigation, assuming deals are structured and underwritten conservatively.

    Disadvantages can include a lack of liquidity, and if the investor is unfamiliar with real estate investment and operations, loss of principal and/or the need for active management of non-performing loans.

  • Funding for hard money loans typically comes from funds that specialize in private real estate lending or from individuals.

    Funds collect money from investors, and the fund manager oversees the process of sourcing, selecting, and originating the loans. Investors in these funds are often accredited investors who either don’t have significant experience in real estate or simply don’t want to manage all those processes themselves.

    Individuals who make hard money loans do so in different ways. They may invest directly in a single loan or work with a small number of other individuals to invest in a loan. They may or may not work with a broker who helps them identify prospective borrowers. These individuals are often real estate investors/developers themselves who make hard money loans to keep their capital earning a higher return than it would if deposited in a typical bank account.

What is trust deed investing and how is it related to hard money lending? 

  • Trust deed investing is simply investing in loans secured by real estate. Most trust deed investments are relatively short-term loans with maturities in the two-to-five year range that are made to professional real estate investors.

    Real estate investors/developers buy properties, renovate them, and resell them for a profit. Banks are reluctant to lend to this market in part because banks prefer to make loans with longer maturities so they can earn interest over a longer period of time. Trust deed investors fill this gap in the market by providing short-term loans at higher interest rates than what banks charge.

  • Trust deed investing and hard money lending are closely related. Trust deed investors are one of the sources of capital for the private money loans made by hard money lenders.

    In some cases, trust deed investors work with brokers to fund hard money loans for borrowers.

    In other cases, funds make private money loans to real estate developers/investors. These funds are making trust deed investments when they fund a loan. For more information about trust deed investing, please see our Trust Deed Investing FAQ.

More about the hard money lending industry 

  • Prospective borrowers can learn about private money lenders by:

    • Attending real estate events.

    • Making inquiries at local business schools about real estate-related events.

    • Looking through real estate industry publications.

    • Connecting with real estate industry professionals including title insurance representatives, mortgage brokers, and real estate investment brokers.

    In Los Angeles, UCLA has the Ziman Center for Real Estate and USC has the Lusk Center, both of which are focused on real estate-related research, education, and fostering productive relations between academia and the real estate industry.

  • Hard money lenders may belong to such industry groups as the American Association of Private Lenders and the National Hard Money Association.

  • The employees of hard money lenders primarily perform the following job functions:

    • Underwriting (determining what a property is actually worth and the creditworthiness and credibility of the borrower).

    • Marketing to develop new borrowers and generate deals.

    • Accounting and servicing (servicing is billing borrowers for interest due and tracking interest payments).

    • Investor relations and reporting.

  • Private money lending tends to be hyper localized because knowledge of the local real estate market is extremely important to enable property inspection and an understanding of actual market values and transactions.

  • Hard money lending is typically a localized business with few national brands because:

    • The ability to inspect properties and to understand the dynamics of local markets is critical to a lender’s success, hence most lenders prefer to stick to markets they know, in their own area.

    • Lenders are heavily reliant on their reputation and referrals, which are often localized.

    • Overly aggressive lenders that invest heavily in marketing and geographic expansion may be lax in their loan underwriting and have a high failure rate if and when investments go sour.

  • Borrowers who believe that they have been taken advantage of by a hard money lender can contact their state’s Department of Real Estate (DRE) to file a complaint. Each lender must have a licensed real estate broker, and the DRE allows complaints to be filed against such brokers. The complaint becomes public record and can be seen when looking up the licensed professional on the DRE website.

  • Due to some unscrupulous lenders, the term hard money loan can have a negative connotation. This is especially true of loans made to owner-occupants in economically disadvantaged areas such as inner-city neighborhoods. In contrast, the term bridge loan, which means the same thing, does not generate as much controversy. Bridge loans are understood to be short-term loans to investors (not owner-occupants) who understand the role of such loans and can use them responsibly.

  • Yes, many legitimate businesses use hard money loans responsibly to meet their funding needs, and to capture opportunities that require quicker funding than is available from traditional lenders.

 

Interested in investing in hard money loans? Or in getting a hard money loan for a real estate project?

Contact us at info@arixacapital.com or (310) 905-3050.

©Arixa Capital Advisors, LLC. 2022 All Rights Reserved. Arixa Capital Advisors, LLC is licensed with the California Department of Financial Protection and Innovation. In California, all loans are made or arranged by Arixa Capital Advisors, LLC pursuant to a California Finance Lenders Law license No. 60DBO-98673 (NMLS ID No. 2318142). Arixa Capital Corporation is licensed with the California Department of Real Estate under license no. 02001940 (NMLS ID No. 1458115). Arixa AZ, LLC originates loans in Arizona and is licensed with the Arizona Department of Insurance and Financial Institutions under license no. BK-1029177 (NMLS ID No. 2187382). Please visit www.nmlsconsumeraccess.org for more licensing information. All Arixa companies make loans only for business or commercial purposes and not for personal, family, or household purposes. Loan product availability may be limited in certain states. This is not a commitment to lend. All loans are subject to borrower underwriting and credit approval, at Arixa’s sole and absolute discretion. Rates, fees and related terms are subject to change at any time without notice, and may vary among borrowers, depending on a variety of matters. Other restrictions may apply.

 
Guest User