What Is A Hard Money Loan?

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For the actual definition, go to www.investopedia.com. You’ll see that it is referred to as a “last-resort loan”! I agree and in this video I give a number of reasons. One is that the loan-to-value (LTV) ratio isn’t good. That’s because hard money lenders use their own formulas that have little to nothing to do with a property’s true value or the market.

Hard money loans aren’t there to work in your favor, but they can work as a last resort. The great news is that you don’t need hard money lenders or their high-interest loans. You can raise your own private capital.

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Video Transcript

Hi, Jay Massey here, with the CashFlowDiary.com and in this video I’m going to explain what is a hard money loan in two minutes or less.

The cool thing about today’s technology is that finding out definitions of things is very, very, easy. So you can go to website simply like Investopedia.com one my favorite places to go when I need a definition of a financial term.

According to Investopedia.com a hard money loan is: “A loan of “last resort” a or a short-term bridge loan. And I agree with the last resort part for sure, hard money loans are backed by the value of the property not by the creditworthiness of the borrower. Since the property itself is used as the only protection against the default by the barrower.

Hard money loans have a lower loan to value ratio than traditional loans. Simply meaning if you have an asset that’s a value that hundred thousand dollars they’re not going to land 60, 70, 80 or 90 percent of that value, they make only be willing to lend 50, 40, 30 percent of that value.

Because they’re not doing a full underwriting package to understand the entire risk that they’re taking, they’re basing the 100 percent of their return on that quality of that asset in going my worst case scenario is you don’t pay I take the asset in that’s how I get my money back.

And they’re completely fine with that which is cool. Because there are situations and when this make sense like if you have a free and clear house and you’re wondering what on earth can I do to get the money really quickly this could be a solution.

It can allow you to take advantage of a fix and flip opportunity a buy-and-hold building a resort construction financing all kinds of fun things that you can be out there using the capital for because sometimes real estate isn’t as liquid as we’d like it to be and a hard money loan can be your perfect solution.

Thanks for watching.

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Until next time.