It is not uncommon to hear mortgage industry insiders refer to hard cash lenders as a last resort. While this might be true to the extent that many borrowers who seek loans from hard cash banks do so as a final resort, there are numerous cases in which a hard bank may be sought before a traditional banking establishment. Let's have a look at some eventualities where a tough bank could be a first stop instead of a last resort.
COMMERCIAL Real Estate DEVELOPMENT
Let's say a real estate developer has sunk $10 million into a development deal and originally planned to sell units in Jan and would then start to recoup their investments dollars from the project. As is the case with lots of such endeavors, delays may push back the start sales date or the project may go over budget, leaving the developer with a money negative situation. The developer now must take out a bridge loan to get through his money poor period to "survive" until the project begins to realize a money positive position. With a standard loan, the bank wouldn't push through the loan for the borrower for four to 6 weeks. The developer would default on his original loan or would not have cash available to complete up the project. The developer wants money at this time and oftentimes needs the cash for only a two to four month period. In this eventuality, a tough money lender would be the perfect partner because they can offer a loan quickly and efficiently.
REHAB INVESTOR
Another example of a tough money scenario is a rehab investor who requires a loan to renovate run down houses that are non-owner occupied. Most banks would run from this loan because they would lack the capability to determine that the rehabber is going to be ready to directly sell the units for a good profit รข€" especially with no current tenants to provide rent to deal with the mortgage. The hard money lender would, in all likelihood, be the sole bank happy to take on such a project.
FLIPPING PROPERTIES
Another group who may use hard money banks as a kick off point as opposed to a final resort are real estate investors looking to "flip properties." If a stockholder locates a property that they determine to be an excellent value, they might need quick and secure financing to take buy, reconstruct and sell the property swiftly. Anyone looking to flip real-estate has no wish to hold on to the property for a lengthy period and the short term loan from a tough money lender will accommodate this need. The loan may be structured as interest only, keeping the costs low. Once the property is sold by the individual who is flipping the property, the principal is paid back and the profit is kept or reinvested into the next project.
A BORROWER IN FORECLOSURE
One final scenario of hard money involves someone who finds themselves in foreclosure. Once a homeowner falls behind on their house payments, most lenders will not provide them with a loan or restructure their current loan. Now and then, someone that is facing foreclosure will obtain a hard cash loan to avoid foreclosure proceedings and use the time to sell the property.
The question remains why would funds provider loan money if a normal bank would not even consider such a gamble. The answer is 2 fold. The 1st is that tough money lenders charge raised rates than conventional lending establishments. The second's that tough money lenders require the borrower to have at least 25-30% equity in real-estate as collateral. This insures that if the debtor goes into default on their loan the bank can still recover their original investment.
A tough cash loan is essentially a marriage between a borrower in a tricky spot (either from a time sensitive point of view or due to their poor financials) and a lender who is risk adversary and is pleased to take a chance for a higher return. While hard money loans may be a last resort for many , there are a great many scenarios when hard money is the only possible way to go.
COMMERCIAL Real Estate DEVELOPMENT
Let's say a real estate developer has sunk $10 million into a development deal and originally planned to sell units in Jan and would then start to recoup their investments dollars from the project. As is the case with lots of such endeavors, delays may push back the start sales date or the project may go over budget, leaving the developer with a money negative situation. The developer now must take out a bridge loan to get through his money poor period to "survive" until the project begins to realize a money positive position. With a standard loan, the bank wouldn't push through the loan for the borrower for four to 6 weeks. The developer would default on his original loan or would not have cash available to complete up the project. The developer wants money at this time and oftentimes needs the cash for only a two to four month period. In this eventuality, a tough money lender would be the perfect partner because they can offer a loan quickly and efficiently.
REHAB INVESTOR
Another example of a tough money scenario is a rehab investor who requires a loan to renovate run down houses that are non-owner occupied. Most banks would run from this loan because they would lack the capability to determine that the rehabber is going to be ready to directly sell the units for a good profit รข€" especially with no current tenants to provide rent to deal with the mortgage. The hard money lender would, in all likelihood, be the sole bank happy to take on such a project.
FLIPPING PROPERTIES
Another group who may use hard money banks as a kick off point as opposed to a final resort are real estate investors looking to "flip properties." If a stockholder locates a property that they determine to be an excellent value, they might need quick and secure financing to take buy, reconstruct and sell the property swiftly. Anyone looking to flip real-estate has no wish to hold on to the property for a lengthy period and the short term loan from a tough money lender will accommodate this need. The loan may be structured as interest only, keeping the costs low. Once the property is sold by the individual who is flipping the property, the principal is paid back and the profit is kept or reinvested into the next project.
A BORROWER IN FORECLOSURE
One final scenario of hard money involves someone who finds themselves in foreclosure. Once a homeowner falls behind on their house payments, most lenders will not provide them with a loan or restructure their current loan. Now and then, someone that is facing foreclosure will obtain a hard cash loan to avoid foreclosure proceedings and use the time to sell the property.
The question remains why would funds provider loan money if a normal bank would not even consider such a gamble. The answer is 2 fold. The 1st is that tough money lenders charge raised rates than conventional lending establishments. The second's that tough money lenders require the borrower to have at least 25-30% equity in real-estate as collateral. This insures that if the debtor goes into default on their loan the bank can still recover their original investment.
A tough cash loan is essentially a marriage between a borrower in a tricky spot (either from a time sensitive point of view or due to their poor financials) and a lender who is risk adversary and is pleased to take a chance for a higher return. While hard money loans may be a last resort for many , there are a great many scenarios when hard money is the only possible way to go.
About the Author:
Tim Kelly is a guru in finance having completed his LLM in Finance from Institute for Law and Finance at Frankfurt University. To Find cash loan , easy company loan, 24hr personal loan singapore
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