Why do people use hard money?
Savvy investors use hard money to their great advantage. Let’s look at a Western New York example of Hard Money lending. The Seneca Casino paid an offshore investor for the $100,000,000 needed to build their first casino in Niagara Falls. It is rumored at 23+%, short term.
Bad move? No-it was brilliant!
The Casino in Niagara Falls was up and running in 100 days and the loan was repaid.
There is a general misconception that hard money is an opportunity of last resort for people who have, or want to have, an interest in real estate. After all, the rates are higher, terms shorter. That is a truth-but not the whole truth.
Read Also: Understanding Hard Money Loans
Conventional Financing is not always an option
Except for the people who can walk into their bank with a deed in their hand, and walk out with a check, bank financing is highly unlikely. There are, however big lenders that advertise how quick, easy and cheap it is to borrow from them. It isn’t until you have answered every question (my favorite is what was your mothers maiden name), jumped through every hoop (they start out slow-by the time you are done you’ve submitted 50 pages of forms) and either paid thousands of dollars up front or rolled the costs into your financing (costing you even more). Oh-and time, I’ve seen it take up to a year.
Look at it from their point of view. They don’t know you. You don’t have title to the building. You can’t prove a history of managing or on time payments for the building (because you don’t own it). Trusting you is a big risk for them! You are at a great disadvantage.
Hard money makes things happen now. Hard money is often used to purchase property, take title and get the business moving. The new owner usually chooses to refinance into permanent long term financing when they have the advantage. In the mean time the cash register is ringing.
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