Paying off Hard Money Lender Early - Posted by Anthony

Posted by Bob Beckman on January 16, 2002 at 21:07:44:

Good post Jim!
Bob Beckman
Rehab Funding

Paying off Hard Money Lender Early - Posted by Anthony

Posted by Anthony on January 16, 2002 at 17:17:32:

If I borrow $10k to purchase multi-family and resell for $30k note and sell note for $25k I have enough to pay off my lender. Do u think he/she will accept my offer with lets say $5k attached to $10k making it $15k for Lender in same year and $10k for me. Has anyone ever did this before

Added Question - Posted by Anthony

Posted by Anthony on January 16, 2002 at 17:28:38:

whats the difference between hard money and private money ? which wants a lesser yeild ? Do you advertise in classifieds for private money ???

Hard Money vs. Private Money - Posted by Jim Kennedy - Houston, TX

Posted by Jim Kennedy - Houston, TX on January 16, 2002 at 20:33:44:

Lately, I’ve seen the terms “private money” and “hard money” used synonymously. Here’ a copy of a post I made awhile back:

It may merely be semantics, but I think of “private money” and “hard money” as two closely related but different sources of funding. I consider the main distinction between hard money and private money is that hard money comes from sources routinely accustomed to funding transactions while private money comes from sources that don’t ordinarily fund deals and may never have funded a deal before. These are generally private individuals who you cultivate as a source of funds, e.g. your doctor, dentist, accountant, neighbor, relative, former co-worker, or basically anyone you know who may have some money to invest.

In the case of hard money, the lender generally dictates the terms of the loan. On the other hand, with private money, the terms of the loan are very negotiable between the private money investor and the real estate investor.

Depending on the lender, hard money will want an LTV of 65% or lower, interest in the teens (12% - 18%), with 3-10 points and possibly a pre-payment penalty. Some hard money lenders will base the LTV on the ?after repaired? value as opposed to the ?as is? value. This allows the investor to pay for the repairs as well as the acquisition of the property. In those cases, the repair funds are generally held in escrow and released on draws after each stage of the rehab is completed.

A hard money lender is also known as an equity-based lender. In most cases, these folks are either full time hard money lenders or regularly make hard money loans as a supplemental source of business.

Ed Wachsman has a pretty good explanation of hard money in his How To article titled ?A Glossary Of Common Terms Used In Loans And Lending?. You can find it at:

Regarding private money, when I approach a private individual to see if there’s any interest in funding a deal with me, I try to find out what will make the investor happy. I’ll ask the investor what kind of a return he/she is currently getting on their money. I then ask what kind of return they’d be looking for on our deals. I’ve had people quote me rates as low as 10% and as high as 25%. I then structure the deal so that my investor receives more than he asked for. If he says he’d be happy with 10%, I give him 11% or 12%. If he says he’d be happy with 15%, I give him 16% or 17%. Rarely do any of my private money investors ask for points, but sometimes I’ll offer one or two points just to sweeten the return for my investor. As long as the deal will support the cost of the funds, I’m not too worried about the interest rate. The availability of the money is generally more important to me than the cost. Naturally, if the investor asks for more than the deal can afford to pay, we either negotiate more reasonable terms or I take a pass on that particular investor for that particular deal.

By the way, hard money lenders generally get the funds that they loan out as “hard money” from private investors.

Hope this helps.

Best of Success!!

Jim Kennedy,
Houston, TX