If you've ever been a bit short on cash and needed money quick to meet a goal, you've probably heard of hard money.
Hard money is a type of short-term loan that is usually granted by a non-bank, private lender. The lender would secure the loan with a "hard" or tangible asset, such as a rental property. If the borrower defaults on paying back the loan, the lender would be able to obtain ownership of the "hard" asset.
The loan process is typically less stringent than traditional, lower-cost loans and often comes with high-interest rates (8% - 16%). Due to the high-interest rates associated with hard money, property investors typically use these loans only for a short duration.
People who typically can't get approved for traditional loans may opt to use hard money because the process to obtain the hard money is far simpler and faster than a traditional mortgage. Additionally, investors who have time-based milestones like property developers and flippers may opt to use a hard money loan because the process is far less cumbersome.
Even if the interest rate is higher than other options, if the investor only holds the loan for a shorter duration, the dollar cost could be cheaper than traditional options.
When an investor uses hard money, some common things to expect include: