Hard Money Lending

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Montecfo

Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Joined
Aug 11, 2016
Messages
7,697
Location
Northern Virginia
Coming out of the financial crisis I did some home flipping for a few years and it came out very well.

Now I am thinking of doing some hard money lending. I know a few folks here have been or are currently hard money lenders.

Curious what typical terms are for the deals you are doing. This is for residential property flips.

Thanks for any feedback you could provide.
 
1. **Be in first position. not second.**

2. We're lazy. Have had our loans at 12% and 4 points for the last ten years or so - we take two points and the guy that offers us lending opportunities takes two. Usually a six month term on flips, new construction we release funds as progress is made, but interest accrues on the whole amount. Usually offer a one year term on those, no pre-payment penalty.

3. We were serious landlords, so a touchstone for us was "If the loan goes bad and we have to foreclose, at a cost of $25k+, is the property one we would want to own at the amount we lent + foreclosure costs?".
 
So no penalty if the initial term is extended?

And do you pay any other costs, other than cost of foreclosure, if it comes to that?
 
Montecfo said:
So no penalty if the initial term is extended?
Depends - we have some onerous late penalty charges, and if a borrower is late or random with their payments we may not extend. OTOH, making payments as agreed, maybe a day or two before due, gives me warm secure feelings. Big reason I have all our payments out be auto-pay. Did have a couple borrowers ask to increase their loan amount, which I did after comparing comps and consulting my belly. Did charge them points on the difference.
And do you pay any other costs, other than cost of foreclosure, if it comes to that? We have a payment collection escrow company - they handle our collections, figure the daily interest, assess any late charges, send final accounting... Normally try and get the borrower to pay for the setup, close out and monthly fees. The guy that gets the other two point fee provides the paperwork, now and again we pay a notary fee or a wire fee and I don't bother getting it reimbursed.
Click to expand...
 
Thanks for that.

Paperwork meaning loan docs, form of lien, HUD1, etc? Title company?
 
Yes. We get a title report and associated docs from the title company and the collections escrow company with us shown as lien holders. We read and correct terms and get on the phone back and forth with them a few times. Try and stay with companies and people we've dealt with before as they've proven themselves.
 
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