To use or not to use hard money, that is the question.

I was chatting with Ashley Ransom from BiggerPockets.com and she posed a real good question. When should one use hard money?

Things that make you go hmmm…

Well I’m no expert but I can tell you what I learned from a recent hard money REIA meeting discussion board that I attended.

There are a lot of misconceptions about hard money lenders: what they are, what they aren’t, how much they cost, and when you should use them.

Hard money lenders are individuals or small companies that have funds available for investment. They have the advantages of being flexible and able to move quickly. They will rarely make a loan which is above 60- to 70% of the renovated value of the property. So, if the borrower defaults on the loan, the lender can feel quite secure that his or her investment can be recouped.

Use it wisely.

When to use it:

• For short term 6 months or less is recommended but they can go up to 18 months
• When you will have a quick turn around to other source of funding. For example your conventional loan is taking some time to be processed but you must close ASAP
• They only fund good deal so make sure you have your profit built in

Cons or when not to use it:

• It’s costly
• Owner occupied
• If you have less than 20% to invest in the deal yourself
• If they are 2^nd option on the loan

In my REIA I have this wonderful lady to ask questions to her name is Ann Bellamy and you can check out her site via http://www.buynowhardmoney.com/

More information can be found in the following links:

http://www.nuwireinvestor.com/howtos/how-to-use-hard-money-loans-to-finance-real-estate-52042.aspx

http://www.foreclosureuniversity.com/studycenter/freereports/hard_money_lenders.php

http://www.articlesbase.com/real-estate-articles/when-to-use-hard-money-lenders-in-real-estate-investing-933457.html

http://www.nuwireinvestor.com/howtos/how-to-use-bridge-financing-to-maximize-your-cash-53271.aspx (this is a really good article)

My advice

Whether you use it or not, you should always have one or two in your rolodex where you have developed a relationship with so that you may do a quick transaction if the opportunity comes through.