Hard money is any loan secured by the value of a hard asset. When it comes to qualifying the main factor these lenders consider is, “if this borrower defaults will I make my money back by reselling their property?”If the answer is yes, you can get a hard money mortgage, even if your business has gone through financial difficulties.
Conduit loans, on the other hand, are individual mortgages which are bundled into securities which are then sold off on wall street as something called “commercial mortgage-backed securities.” These lenders give loans to bad credit borrowers because the main thing they care about is, “how long can I keep this person making interest payments?”
When compared to conduit loans, hard money might seem far more expensive-but once you sign on to a conduit loan, getting out of it is next to impossible.
Conduit loans are a bit like a loveless marriage, in that getting out of them is both messy and expensive.
If you want to get out of a conduit loan early, you’ll end up paying a premium so that the folks on wall street can continue to collect interest payments on your mortgage. If you want to pay off a conduit loan early, yield maintenance comes into play, and if you want to refinance, you’ll have to go through defeasance. In both instances, you give your lender money so they can buy treasuries so that they can continue to pay dividends to their investors.
Depending on the size of your loan, the costs of yield maintenance and defeasance could easily exceed a hundred thousand dollars. So if your business is facing short term financial difficulties don’t get sucked in by the low rates conduit lenders offer. Getting out of these deals once you’ve signed onto them could prove to be an expensive nightmare.
Hard money providers encourage you to pay them back early.
So in the world of hard money, there is no such thing as yield maintenance or defeasance. If your sales are suffering because of a lousy location, hard money can help you secure a new storefront. As your sales pick up after a few months and your financial situation improves you can then refinance to a regular commercial mortgage. No strings attached.
So don’t marry a wall street bureaucrat for the next 30 years because your business is suffering due to short term financial difficulties. Hard money might charge more in the short term, but in the long run, it offers you something conduit lenders can’t: financial freedom, and who can put a price on that?
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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