We get a lot of people who ask why anyone in their right mind would pay 13% and 3.5 points when market rates are so much lower. Often it’s not the cost of the money that’s important, it’s the availability. Hard money loans aren’t always the right solution, but here are a few examples where it was a great fit..

Hard money loan #1: Renovation and flip, 78723

Hard Money Flip on La SalleDena came to us after trying unsuccessfully to get funding from a bank. She had a contract to purchase an investment property from an estate for just $50,000, but it needed $90,000 in repairs. Her bank’s appraiser estimated the house would only be worth $170,000 after the renovations. She was frustrated by this valuation and the associated loan offer and we agreed to lend her $130,000. Dena finished her renovations and got the finished product under contract in less than 2 weeks for $250,100.

Dena paid Little City Investments much more than her bank would have charged, but the ability to do the deal was far more important. She ended up netting about $80,000 on this investment. If bank funding was her only option she would have had to pass up this deal.

Purchase: $50,000
Renovation: $90,000
Sale: $250,100

Hard money loan: $130,000
Loan to value: 52%
Interest paid (7 month turnaround): $9,858
Origination, processing and draw fees: $6,200
Title policy, closing costs, 3% to buyer’s agent: $10,500
Property taxes: $2,065
Utilities, yard maintenance, other expenses: $1,377
Profit: ~$80,000

Hard money loan #2: Cash-out refinance, 78703

Joan owned a property in Clarksville free and clear and needed access to cash to complete another real estate project. She used the loan funds to prepare another property for sale and used the proceeds from the sale to pay off our loan. The loan to value was so low that we allowed the borrower to roll the first 6 months of payments into the loan.

Conventional financing was not an option for Joan and her cash crunch could have caused her to lose both properties. Our hard money loan was a welcome solution.

Hard money loan amount: $185,000
Property value: $600,000
Loan to value: 31%
Term: 1 year
Origination and processing fees: $7,900
Interest paid: $24,975

Hard money loan #3: Duplex and fourplex investment properties

Leasehold properties aren’t the most common use of a hard money loan, but it can be an exceptional tool in the right situation. Robert buys foreclosed duplexes and fourplexes to keep in his investment portfolio. Often these foreclosed properties are not in rentable condition at the time of purchase, which makes them unattractive to conventional lenders.

Hard money loans have allowed Robert to buy, improve and lease the properties. Once the properties are rented, he’s able to show consistent rental income. With proven rental income and established leases, conventional banks are more than willing to refinance his duplexes and fourplexes.

Bridge loans are a critical piece of Robert’s business model and have enabled him to buy many more duplexes and fourplexes than he would have otherwise. Also, because our loans allow Robert to make his offers as cash offers with a very quick closing, he has built excellent relationships with foreclosure listing agents. He often gets the opportunity to make offers before the properties hit MLS.