Interest Rate Advantage: Discuss how the higher interest rates in hard money lending can translate to better returns, particularly in a low-interest-rate environment.
Short-Term Gains: Explain that the short-term nature of most hard money loans, typically ranging from six months to a few years, allows investors to quickly reinvest their capital, compounding their gains over time.
Quick Approval Process: Unlike traditional lenders, hard money lenders can approve and fund loans in a matter of days, making them an ideal solution for urgent financing needs. This quick turnaround is appealing to borrowers and allows investors to deploy capital rapidly.
Flexible Terms: Hard money lenders are often more flexible in structuring loan terms, including interest-only payments, balloon payments, and custom-tailored repayment schedules. This flexibility can be beneficial for both the borrower and the investor, as it allows for creative financing solutions that meet specific needs..
Collateral-Backed Security: One of the primary risk mitigants in hard money lending is the collateral that backs the loan. Typically, the loan is secured by real estate, and the loan-to-value (LTV) ratio is kept conservative, usually between 60% and 70%. This means that even if the borrower defaults, the lender has a buffer, allowing them to recover the loan amount by selling the property.
Due Diligence: Emphasize the importance of conducting thorough due diligence on both the borrower and the property. This includes evaluating the borrower’s business plan, the property’s current and potential value, and the local real estate market conditions.
Diversification: Suggest diversifying across multiple loans and property types to spread risk. By not putting all capital into a single loan, investors can protect themselves against potential defaults.