HARD MONEY - When do you use it?
Glen Coker
Fort Brooke Investment LLC
(813) 879-3931

Fort Brooke Investment LLC, is a Hard Money Lending company that I formed with the idea of helping Real Estate Investors buy, renovate and sell residential properties using very little of their own cash. We do this by offering a "Hard Money" rehab type loan which allows you to borrow 100% of the funds necessary to acquire and renovate residential investment properties.

This article is one of a multi-part series I've prepared to help you better understand Hard Money and the "Art of Leveraging". In this first article the topic will center on the question of: "When do I use Hard Money"?

Hard money can be more expensive then your typical conventional mortgage with average interest rates ranging from 14% to 18% and an average fee of 5 points. So if Hard Money is more expensive why should you use it? The answer is simple. There are times to use Hard Money and times not to use it. First off do not use it on deals where there is no time pressure or the property is in good shape. There are, however, going to be times that you can benefit greatly by using Hard Money for your rehab deals.

When to use Hard Money - You should use Hard Money:
a) When there is no time for conventional approval - To give you an example, Fort Brooke has an average closing time of 3 to 5 days from the time we receive an executed contract and in some cases we fund Court House Auction deals in 24 hours. The ability to close fast can be a powerful tool to use in today's market. In many transactions a 3 to 5 day closing will allow you to buy properties you would not normally have time to close on. The ability to close fast is also one of the primary negotiating tools used to get a large discount on distressed properties. The points paid by the investor can normally be recouped through a lower price by offering fast cash (with the shorter closing).
b) When the investor/property is not eligible for conventional financing - For example, you may have a decent credit score but your debt is running higher then normal. Or the property has a repair budget that is higher then its purchase price. At Fort Brooke we do not look at your income/debt ratio and will loan on any size repair list. For some clients we have even loaned on sink hole and burned out properties. Do you think your conventional lender would do this?
c) When the investor does not want the transaction on credit history or mortgage in his/ her name - Fort Brooke, like most Hard Money Lenders do not report to credit agencies unless you do not make your payment. Also, unlike most conventional financing we allow you to take title in a trust.
d) When the investor needs a financial "partner" who can contribute 100% capital for the entire deal - At Fort Brooke we loan up to 70% of the "after repair value" instead of the "as is" value used by conventional lenders. By using the ARV method it allows you to finance 100% of the purchase price, renovations, closing costs, title and property insurance, assignment fees, broker fees, taxes and Fort Brooke fees provided that the loan amount does not exceed the 70% ARV loan to value ratio. So you can think of your Hard Money Lender as your "all money partner" except if you had this type of partner the going rate would be to pay him/her 50% of the profits. By using hard money you are only paying an average fee equal to 5% of the loan amount, however, the fee is funded in the mortgage and not out of your pocket. This in turn frees up your capital to do other deals and you keep 100% of the profits - "The Art of Leveraging".

Well there you have it. Hard Money lenders can offer you a "no money down" rehab loan program which allows you to borrow 100% of the funds necessary to acquire and renovate residential investment properties. A Hard Money Lender can be a valuable addition to your real estate investor team, particularly for investors with limited resources. They enable you to purchase properties soon after your offers are accepted, and can provide you with the funds necessary for your renovations. Next month the topic will center on the real numbers used in a Hard Money loan and how to calculate your proforma when using Hard Money to finance your deal.