Hard Money (Episode 60) S4 E15

Do you know how hard money works? You should!

0:00 – Introduction.

0:53 – What is Hard Money? Lending against a hard asset. Different than traditional lending, which is lending against the credit of a borrower. Hard money is usually a short-term loan.

Hard Money: Money loaned against a hard asset. Typically short term (matter of months). Requries information about the asset like ARV, ratios, income potential, etc.
Traditional Lending: Lending based on applicant credit worthiness. Typically longer term. Requires income verification like taxes, W2, bank records, etc.

3:10 – What’s Private Money? Private money is funding from a friend or family member that’s generally not a real estate person.

Private Money: Loans from a friend or family member. They’ve got money, but they don’t do real estate. They’re a silent partner. More flexible than Hard Money.

4:37 – Why Hard Money? Traditional lenders won’t lend on property that is trashed. Hard money is also fast — can fund in a matter of days or even hours!

7:10 – The Process. If both sides are very organized, it’s gonna be fast. I want it to be easy. I’m not interested in fluff. Need to know what the value is, condition of the property, and what the ARV is. I need contract, and the entity documents. I like to do 80% loan to value.

11:35 – Fees. I’m a 2 and 12 guy. 2 points is 2% of purchase price. 12% APR. Points + days of interest + amount you borrowed = total loan payoff. I prefer two accounting periods: when I fund it, and when we close. All fees are paid at closing. Dirty estimate is take the borrowing rate and multiply it by 8%. It’s more expensive than a regular loan, but they’re not the same instrument. Hard money is designed for speed, flexibility, and short term. Hard money enables you to take advantage of deals now…yes it costs, but would you rather have a piece of something or none of something?

2/12 on $100,000 Buy: A point = 1% (or $1,000). Loan Fee of 2 points = $2,000. Rate of 12% APR = .12 * $100,000 = $12,000 / yr. Charged per day = $12,000 / 360 or $33.33 / day. 180-day loan = $7,999.40 ($2,000 + $5,999.40).
Down & Dirty Estimate: Borrow amount * 1.08. That’s a rough estimate of a 6-month loan. E.g. $100,000 * 1.08 = $108,000 total payback (original amount borrowed + ~$8,000 interest).

17:19 – BRRRR Strategy. Buy, Rehab, Rent, Refinance, Repeat.  

BRRRR Strategy: Buy, Rehab, Rent, Refinance, Repeat = Wealth.

18:40 – Horror Stories. Understand first vs second position. Understand the value.

1st Position: Highest priority lien. If the property is sold, it’s the first debt to receive payment.
Red Tagged: A sign / sticker on a property indicating authorities do NOT allow anyone to occupy a property until it is safe again.
Horses for Courses: Match the right borrower with the right project.

26:25 – Vetting Borrowers. You can learn a lot by how quickly borrowers get information back. Check out their car — is it clean an organized? So’s their business strategy.

30:35 – The Ecosystem Needs Everyone. We need long-term lenders, we need short-term lenders. We need agents, title, etc. We need everybody.

31:45 – What’d we learn today?

35:03 – Bloopers.

* No points were harmed in the making of this video.

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Matt Strong is the 2/12 Hard Money Guy

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A Production with Security Home Mortgage’s Jason Christiansen, and Hive Collective at Presidio’s Tyler Cazier and “Mr. Suit” Aric Wiszt.

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