If the property appraises for $500,000, you can expect to get $250,000 if the hard money lender will be in first position. That means no prior liens exist. Most of these types of lenders have no loan committee and make decisions based on how quickly they can dispose of the property if they have to foreclose. Deals usually close in two weeks and you can expect to pay up to 6 percentage points as an origination fee.

Anything over 50% loan to value is rare, but there are cases when rents remain high, long term tenants have been in place, and the property is something the lender feels will sell easily if they have to foreclose.

Hard money loans may be the answer when you have no choice but to locate enough money to close a deal. Many investors make commitments based on past histories of loan qualifications with their lenders but those days have gone south as lenders scramble for ways to cover losses.

Borrowers of these types of loans are almost always commercial investors, but can also be business people looking for alternative ways to finance their business and as a way to generate cash flow. It is not for the weak at heart and must be entered into with a stern conviction of careful spending while looking for ways to roll the loan into some more permanent and less expensive financing.

If you think this type of financing is too expensive for you, calculate what you would lose if a deal fell through or what the cost of holding a vacant building would be. Many considerations and calculations go into making financing decisions, but the alternative must always be weighed.

We are seeing a lot of these types of deals coming our way because traditional lenders simply have closed their wallets. If you decide on borrowing money this way remember that this is short term money and should be used to get you through a deal or over a rough spot in your life. When you need money hard money may be the answer.

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