You may have heard this term from other real estate investors. The term actually originated way back with loan sharks and it’s become more mainstream.
Basically why it’s called as a hard money loan is because it is based on the hard asset, not on the borrower itself.
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Fernando O. Angelucci is Founder and President of Titan Wealth Group. He also leads the firm’s finance and acquisitions departments. Fernando Angelucci and Steven Wear founded Titan Wealth Group in 2015, and under his leadership, the firm’s revenue has grown over 100% year over year. Today,
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So, what is hard money? You may have heard this term when speaking with other real estate investors, well, it comes from an old term. In the olden days, these people were called loan sharks, but now they've become a little bit more mainstream. And the reason it's called a hard money loan is because they're basing their underwriting approvals on the hard asset, not on the borrower themselves. So, let's look at the opposite example when you go to a bank, which is not hard money at all, it's probably the farthest thing you can get from hard money. Usually the bank's gonna look at the property and just making sure that it appraises for what you're buying it for. But then they're also gonna look at the borrower, they're gonna look at their credit, they're gonna look at their credit history. Have they had any bankruptcies or foreclosures in the last 7 to 10 years?
What does their liquidity look like? How much cash do they have in the bank to not only pay the down payment amount, but then also the interest going forward. With hard money, you kind of have the opposite, now you're gonna pay a very large premium on the interest rate, but all they look at it, they don't care about the bar. They're gonna still ask for your credit score, they're going to still want to see some experience and your liquidity, but that's not what they're gonna make their decision on. Whether they're going to fund or not based off of your personal package. What they're going to do is they're going to look at the asset itself and they'll say, okay, if worst case scenario, this borrower is going to be unable to exit this property, sell it, what have you? Do we still have enough spread to take the property back and then resell it without losing any money. So that's usually the biggest thing about hard money lenders. They're gonna require that you're getting the property at a pretty steep discount to market value so that their interests are protected and they fund very quickly. But again, you're going to be paying sometimes three, four times the rate, the interest rate that you'll be paying to a bank.
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