Private and Hard Money Funding

The lending environment, as we knew it, has been forever changed; this is in great part due to the sudden decline in the real estate market. The impact of this change has affected the current state of the economy and will shape its future. Nowadays, conventional lending institutions that traditionally took them on will deny 99% of the loan submissions. This has left some real estate investors in a tight spot and will no doubt place many more in the same situation. Fortunately, there is a solution: private and hard money funding.

At By The Beach, we specialize in private and hard money funding for real estate investments. These type of funding are asset-based and primarily for residential property investments. As an alternative to what barrowers can get from conventional lending institutions, there is a clear-cut advantage to getting hard money loans, particularly with regard to taxes. Simply put, there are tax advantages for investors who can quickly turn around rehabilitated properties. This will mean a growth on their net earnings and an improvement on their bottom line. California is ripe for such real estate ventures.

Tax-wise, private or hard money loans are based on value after repairs. An investor can actually hold off tax liability for a period of time, allowing them to build up financial ground. Hard money funding provided by private lenders can provide this ground. Considerable discounts can be had when investment funding comes by way of a private lender.

In general, private hard money funding can offer around 65 percent loan-to-value (LTV) but this can also be offered on after-repair-value (ARV)—the tax advantage is better on ARV. Regardless, investors can get a better deal from a private group versus a public lending agency.

The terms of final transaction considers closing costs, rehabilitation costs, general real estate value, and ARV. A private hard money funding perspective allows the investor more latitude from the lender, something that commercial lenders cannot extend. And, while private lenders prefer a broker price opinion, many will work with ARV. The overall cost an investor has to lay out dealing with a private lender as opposed to dealing with a commercial lender is a lot lower, leaving more capital for investment and maximizing returns.