Terry Kerr, a successful real estate investor and rehabber from the Memphis area, got a call from someone ready to sell a multi-unit property at a cut rate price. The deal was too good to let go, but Terry had a big problem. He and his family were going out of state the next day on a much needed week-long vacation. In order to grab this deal Terry had to arrive at the closing table with cash the day after he returned from vacation.
A good number of people would resign themselves to kissing this sweet deal good-bye. But Terry had a plan. He punched in the telephone number for his private lender. It didn’t take long for Terry to give his private lender the details of the deal, the value, the cost to repair and the projected profit once the property was completely rehabbed.
The private lender did a quick check on the value of the property and the estimated repairs to be done. She had already done a credit and background check on Terry from previous transactions. Her last words to Terry before he left town went something like this, “Go have a great time on your vacation, Terry. I’ll have the money ready for your closing when you return.” These quick money lenders are sometimes pictured as sinister hoodlums lurking in dark alleys waiting to break borrower’s kneecaps when they can’t repay. However, professional hard money lenders are NOT the Mob, but they are not Mama either. Interest rates can go well into the double digits with upfront points depending on the risk factors.
Generally the hard money loan is a temporary loan until the borrower can secure permanent financing or other method of payoff. The main difference between a professional hard money lender like Terry Kerr’s lender and the unscrupulous predatory lender is the design of the loan terms and the type of borrower. The unscrupulous lender structures the loan so that borrowers inevitably fail and the lender/predator can take the house in foreclosure.
On the other hand, the professional hard money lender structures reasonable terms because he wants his money and fees–not the borrower’s house.
There are probably as many different hard money lending loan terms as there are hard money transactions. Terry Kerr’s private loan structure looked something like this:
Sales price on “AS IS” multi-unit: under $ 20,000
Cost to repair property: $ 50,000
Value of property “AS IS” approximately $108,000
Hard Money Loan 65% LTV: $ 70,000
Points paid by Terry to his private lender at time of payoff: $ 7,200 (plus interest paid monthly)
Term of hard money loan: 6 months
Terry’s PROFIT at the end of the deal: !!!!!$ 60,000 !!!!!
Terry Kerr shares his knowledge and experience regularly at the Memphis Investors Group meetings. He shared in a recent interview, “I have done 35 real estate investment deals this year and plan to do 50 next year.” (quoted in 2005)
Hard money lenders fill a niche in mortgage lending, helping consumers who have specialized needs. They can be found all over the United States and the world. .
Memphis Investors Group www.memphisinvestors.com
HomeVestors (Don & Holly Swogger) www.pleaseclose.com/Holldongroup
J. Garner, Mortgage Officer
Evolve Bank & Trust