Hard Money Facts: Myths Debunked

by | Jan 1, 2017 | Financing and Loans

Dispelling Hard Money Myths: The Truth Investors Need to Know

Hard money loans often get a bad rap. Think about it: murky rumors, outdated horror stories, maybe even a shady character someone knows who’s dubbed “a hard money lender.” It’s enough to make any investor wonder if this whole strategy is more trouble than it’s worth.

But here’s the thing: most of that negativity isn’t the whole story. Some of it comes from those frustrating experiences people have with traditional banks, and they unfairly lump hard money in with it. Sometimes, a few bad actors in the industry give everyone a bad name. And honestly, sometimes investors don’t fully understand how hard money is different and assume it’s just a riskier, last-resort type of loan.

Let’s set the record straight and break down why the hard money myths are often just that – myths. You might be surprised to discover that hard money could be the key to unlocking the deals you’ve only been dreaming of.

Myth: “Hard money” means difficult lenders and unfair terms.

Fact: Let’s get one thing straight: the “hard” in hard money lending refers to the nature of the projects, not the personality of the lender. Think of them like specialized tools in your investing toolbox. Hard money lenders are built to handle those challenging deals that make traditional banks run for the hills:

  • Need it Yesterday? Hard money lenders understand the time crunch of competitive markets. When speed is crucial, they can get you funded in days, not months.
  • Fixer-Upper Phobia? Banks see a distressed property and panic. Hard money lenders see potential and the opportunity to unlock massive value through savvy renovations.
  • Credit Score Not Perfect? Life happens, and sometimes your credit takes a hit due to the ups and downs of being an entrepreneur. Hard money lenders look at the big picture of the deal, not just a number on a report.

Bottom Line: Hard money lenders aren’t out to make your life difficult. They’re specialists focused on funding the types of projects that would send a conventional lender into a paperwork-induced meltdown.

Myth: Hard money loans are insanely expensive.

Fact: Cost is relative to the opportunity. It’s easy to get hung up on the sticker shock of hard money interest rates compared to a bank’s advertised numbers. But here’s the thing: real estate investing isn’t about getting the absolute cheapest loan; it’s about maximizing your profit.

Think of hard money interest as the price you pay for speed and flexibility. Could you theoretically get a slightly cheaper loan from a bank? Maybe. But let’s play that out… Weeks of waiting, mountains of paperwork, and then they likely say “no” to that fixer-upper with massive potential.

Now, factor in:

  • The Lost Deal: That amazing property gets snapped up by someone with faster financing. All that profit potential down the drain.
  • The Missed Profit: Even if you do get the bank loan, the delays mean higher renovation costs, lost rental income… Your bottom line shrinks.

Suddenly, that slightly higher hard money interest rate seems less significant when compared to the opportunity it unlocked, doesn’t it?

Bottom Line: Don’t obsess over a single percentage point. When evaluating hard money lenders, focus on comparing them to each other: rates, fees, speed of closing, and reputation. Find the lender that gives you the best shot at securing and maximizing the deal itself.

Myth: Hard money lenders are shady loan sharks.

Fact: Forget the stereotype of hard money lenders as back-alley loan sharks. Reputable lenders in this space are savvy professionals, often with deep experience in real estate themselves. They might come from backgrounds as investors, developers, contractors… they get the game. This gives them an edge in assessing projects that would make a traditional banker’s head spin.

Let’s be clear: they’re not handing out money blindly. Hard money lenders absolutely assess risk. But unlike banks, which often panic at the first sign of anything outside the norm, they’re in the business of funding deals with potential, not just squeaky-clean credit scores.

Here’s the key: It’s a two-way street. Do your homework to find a reputable hard money lender. Here’s how:

  • Seek Referrals: Ask successful investors in your area – who do they trust?
  • Verify the Track Record: Look for experience, good online reviews, and a history of successful projects.
  • Trust Your Gut: Did they explain the process clearly? Are they interested in the deal, not just pressuring you to sign?

Remember, a good hard money lender sees you as a potential partner. Their success is tied to your success in flipping or renting that property.

Myth: Hard money lenders always want you to fail, so they can take your property.

Fact: This couldn’t be further from the truth! Most hard money lenders carefully select projects they believe have a strong chance of success. Think about it: foreclosure isn’t just a headache for the borrower; it’s a pain for the lender too. They’re not in the business of owning half-renovated properties or getting bogged down in legal battles.

Sure, they might be able to recoup some of their investment if they take the property back, but here’s the thing: it’s rarely as much as they would have made if you’d successfully flipped or rented it. Lost time, legal fees, the hassle of finding a new buyer – it all eats into their profits. A reputable hard money lender would much rather see you succeed, get their loan paid back with the agreed-upon interest, and potentially even come back to them for your next exciting project.

Bottom Line: A good hard money lender sees you as a potential partner, not a foreclosure statistic waiting to happen.

A Word of Caution: Hard money isn’t fully standardized, so experiences can vary. There are always a few bad actors in any industry. That’s why it’s crucial to find a reputable lender through referrals, check their track record, and understand the terms clearly.

The Intrust Funding Difference:
At Intrust Funding, we’re out to change the perception of hard money lending. Our simple process, deep real estate expertise, and focus on investor success make us a true partner in your investment journey.


Don’t Miss These!

New Investors

“I have not used a hard money loan before.”

Experienced Investors

“I have used a hard money loan before.”

Fix & Flip
Passive Income Investing
Buy & Hold
1031 Exchange
Reverse 1031 Exchange
Commercial Real Estate
Gator Method