If you have been turned down by conventional banks for a loan, you may have heard about private money or “hard money” loans. Perhaps you are an investor looking for different ways to utilize your money. You may have also heard a lot of unfavorable comments about these loans, so let’s review common questions and myths around private money investing.
Are private money loans less than ethical?
There was a time when private or hard money investing was considered less than ethical or “shady” if you will. There were some historic bad practices and investors in the private money industry. Over time the private money market has evolved with a new generation of professionals who are ethical and understand private money investing and the needs of their customers. Your responsibility should be to learn about private money investing if you are looking for alternative financing, then do your due diligence to find professional private money investors like AHL Hard Money Network.
Why does the market refer to it as “hard money”?
Hard money investors are investing money that borrowers can’t get from conventional banks, due to credit or other issues. This equates to money that’s “hard to get”. In addition, hard money is secured by an asset such as equity in a property, therefore it is a “hard” rather than “soft” or unsecured loan.
Is hard money the same as private money investing?
The term “hard money” has been evolving over time to “private money” to better describe the market niche filled by private investors. They mean the same thing, using private investors to fill a need from borrowers unable to find conventional financing.
Is private money more expensive than a conventional loan?
Interest rates on private money loans can be higher than a conventional loan, but the private money investors are accepting more risk than a bank. They are often financing a loan or commercial mortgage to someone with less than perfect credit, or someone who is self employed with an inconsistent income stream.
What is loan-to-value and how is it applied to private money loans?
Loan-to-value refers to the amount of financing relative to the value of the secured property. An LTV of 50% on a $1 million dollar property means the investor is accepting a loan of $500,000 with a remaining $500,000 of equity assuming the property is owned free and clear.
LTV is one criteria investors should consider, but it’s not the only one. Investors also need to consider the ability of the borrower to repay the debt, so income is a factor. Credit may also be considered but is normally less critical in private money investing due to the secured property used to guarantee the note. Each investor needs to decide their risk tolerance if they intend to participate in private money investing.
How can I become a private money investor?
Your best choice is to work with a firm such as AHL Hard Money Network. We are experienced in private money investing, and can handle many of the details needed to connect you with a borrower. We will describe the costs needed for you to invest in private money loans, as there can be some expenses related to loan servicing and legal fees. Contact AHL Hard Money Loans today if you are a borrower in need of private money, or an investor ready to participate in the private money industry.