Why Hard Money?

I was listening to a sport podcast this week and was pleasantly surprised to hear about a new hard money lender. Many of you have likely heard of Derek Fisher the 5-time NBA champion, former president of the NBA players association, ex-coach of the New York Knicks, and now the executive vice-president of Luxury Asset Capital a hard money lender focused on luxury products(cars, watches, real estate, etc.). Because of his new role many articles, NBA players and pundits quickly labeled him a snake after the release of a scathing dead spin article. That may be true and even may be true about the company he is working for, but it is not true of The industry

I’m always excited to hear about the private lending industry in mainstream news because it gives me the chance to refute incorrect stereotypes voiced by friends, family, and acquaintances.  Lets move into the three biggest misconceptions about hard money.

First: Hard Money Lenders are not Necessarily Predatory

“I’m no banker, but Luxury Asset Capital’s model seems, hmm, a little predatory?” said Chris Thompson of Deadspin.com.

 Chris like many others has been conditioned to believe that all companies dealing with collateral or high rates are inherently exploitative while banks and credit card companies are not. This can not be any further from the truth, honest lenders will tell an individual that they can get a better rate somewhere else if it’s possible. In addition, Lenders are legally required to be open and upfront about rates.

If lenders lie and swindle, they withstand the risk of lawsuits and criminal action. Those that are in the loan to own game are in prison or on their way there. The industry has changed and eventually its reputation will too.

With that being said, just like in any industry there Is fine print. It is important to acknowledge and assess the risks of any transaction you take part in. Missing a payment will cause you to incur late fees just like your credit card. It is your responsibility to keep up on payments and be aware of the details written into the contract. Always have a lawyer review documents before you sign. If you don’t you might learn something after the fact.

Second: They only Target People who have Fallen on hard Times

The pitch on their website involves lending millions of dollars “when time is a factor,” and promises a process that uses as its sole criterion for lending “the value of the asset(s).” They seem very clearly to be targeting athletes who’ve fallen on hard times due to reckless spending, and their collateral model involves lending at a portion of the market value of the selected assets, like, you know, a pawnbroker.      –Chris Thompson, Deadspin.com

Loans like this are not just for people falling on hard times but it can and does help many. Lets compare to success stories we have been part of.  

Steve came to our company once needing two million dollars before the end of the week. After investigating the collateral, we were able to see that it met our loan criteria. We were able to get him the money. The land Steve purchased with the money was sold for three million 2 months later. He made 750K on the deal and we made 250 K. Everyone won and the only reason it worked was because the money came quickly.

Conversely our good friend Kent fell on hard times after the real estate crash in 2007. Kent had previously borrowed millions from banks but suddenly he was unable to borrow the money he needed to continue the growth of his company. He fell on hard times and he made it out because of hard money. Today, Kent continues to use hard money today because of the flexibility it offers.  

Third: They Present Unreasonable rates

Rates for hard money loans are high because risk are high. Most lenders aren’t trying to catch you. If someone could get the money in time for a better rate they would.  The fact of the matter is eliminating risk from loans takes time. Hard Money loans exist for two major purposes. The first is to provide funds to those who would not qualify for a typical bank loan or second to provide funds quickly for an essential and or profitable transaction.If you don’t qualify for a typical loan you are considered a risky investment.If time is of the essence and necessary background checks can’t be followed yo are considered a riskier investment.

The rates are higher because the risks are too. If a lender overvalues property high rates may be the only way, they can make money. On top this hard money loans are often called bridge loans or in other words short term loans. The plan should be to get money quickly use it properly and then proceed to refinance, sell or utilize any other exit strategy.

It is better for everyone if both the borrower and the lender succeed. Less work, less paperwork and less money going to lawyers. Big money can be made off a foreclosure, but most hard money lenders would prefer to just be paid. The headache is not worth it

In Conclusion

Dave Knudson President of Gravity Capital fondly remembers using a hard money deal to purchase an investment property in New Orleans. He was aware of an associate looking for an apartment complex in the area and kept his eyes open for anything matching the description. A hotel came on the market at a great price. Dave approached his mentor and received the cash necessary for the deal. The day after the purchase Dave sold the hotel at a $200,000 increase. After calculating all the costs Dave brought home $70,000 off the deal. In short Dave made 70,000 off money he didn’t have. His increase came from the risk but with research and hustle he mitigated it.

We believe in hard money at Gravity Capital because we have been on all sides of the deals. At it’s best it works for everyone. Apply for a loan today and experience hard money at its best.