Hard Money Lending is exactly what it sounds like; loans that are hard to do. Many borrower's needs fall out of the mainstream loan guidelines and they often need a "short-term" fix.
A private mortgage loan is essentially someone with a lot of money lending to someone who needs it and can't get it from banks or mortgage companies. Most of my investors are older, retired, well-heeled, and smart. Investors are sharp and know how to mitigate loss. They are also quirky and their quirks tend to match up with their life experiences.
Let me give you some examples where hard money loans are appropriate and the type of investors I match up with the loan:
1- Multi-family: Most banks or commercial lenders will not lend over 55-60% on multi-family in Southern California. The rents don't cover the monthly debt service and expenses. I have three investors who made a living owning and managing apartment complexes. They know the "secrets' to undervalued properties that are being leased at below-market rates. They'll lend up to 75% on those properties if they have a decent borrower.
2- Investor Seconds: Many investment properties have low fixed-rate loans on them and the owner does NOT want to refinance a 5.25% first just to get money out of the property. Oftentimes, the investors are "stated-income" borrowers that couldn't get a second mortgage on the investment property. Maybe they just need $50K for some repairs. They'll pay 12-15% for that money. I have seasoned investors that understand that challenge.
3- Small Builders: Small builders are taking it on the nose this year! Their materials costs skyrocketed. They have "runout of money" on their traditional construction loans and are 80-90% completed. They need maybe $100K to get the over the hump, finish the property and get it sold. I have retired builders that will look at the property, analyze the costs overrun and lend him the money for a year at 15% with no payments (interest accrues).
4- Small Business Owners: Many times the small business owner can't get a quick loan on his property because his credit scores have dropped (he's maxed out on credit) and he just needs the money for short-term.
5- Recent Bankruptcy: We loaned 70% to a physician who was 6 months out of BK. The seller carried the 30% balance and the doctor got the house. We knew the worst was behind him (with the BK) and thought he could refinance in a year. The investor made 10% on his money, the seller got his price, and my borrower refinanced out of the loans in 18 months. The investor, a retired physician, understood how managed care wreaked havoc on general practitioners in San Diego.
