Private investors are now acting like banks
Glenwood Springs, CO Colorado
Hard money hard to get? Nah, it can’t be, can it?
Well, it is, sort of.
It used to be, if you had a lot of equity in a piece of real estate, you could go to a lender specializing in hard money, which means very expensive money, and get a chunk of cash. This you could then use to (a) pay off the nice lender who was foreclosing on your property; (b) invest to make that property, or something that you were developing in your garage, worth a lot more money or; (c) to change your name and take your money somewhere the kneecapper couldn’t find you to collect his 18 percent interest.
Now, the hard money people are acting like (choke) banks. (And banks are acting more like the 18 percenters, in that their rates are dramatically higher than a year or so ago.)
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While banks are eschewing those nice prime-rate-and-below loans they were so eager to make earlier in the decade, the private money (a nicer designation than hard money) lenders are, in most cases, demanding complete documentation of income, assets and liabilities, just like a bank.
That’s because they’re more focused on getting repaid. These lenders aren’t so eager to get the property, because, in these troublesome times, they’re not really sure what the real estate is worth.
Private investors like to turn their money over quickly, either by getting the loan paid off, or by a quick foreclosure and disposal at a fire-sale price. But what’s a fire-sale price today? Nobody’s really certain, with markets stagnating at best, or in free fall.
And the range of acceptable collateral for a hard money loan has narrowed dramatically. Raw land is pretty much out, and private money isn’t too interested even in developed subdivisions except at an ultra-conservative level: no quick sale market for this kind of property.
Indeed, these investors are looking for commercial properties, with cash flow to cover the debt service. Sounds just like a bank, doesn’t it?
Finally, if you thought hard money could be a last resort if you ever had to borrow money on your home, forget it. Private money won’t touch a loan on a primary residence under any circumstances. Current consumer protection laws and regulations make it impossible.
In fact, many private investors are in the same boat as many banks: a lot of foreclosed properties, litigious borrowers, and a moribund market.
You might say they’re earning their 15 percent return.
Pat Dalrymple is a valley native. He’s been in the mortgage and banking business since 1961. He’ll be happy to answer your questions or hear your comments. His e-mail is email@example.com.
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