05/19/2020
HARD MONEY LENDING
There is an aspect of real estate, and an area of law, that is neglected and rarely discussed. For those realtors and attorneys that have not spent time handling hard money transactions, I can tell you that this is a lucrative area in the real estate world.
Hard money loans are now a regular source of money for investors, developers and what we all call "flippers." Many investors that simply want to rehab a property and turn it around for sale either do not qualify for a regular bank loan or do not want to spend the time going through the sometimes tedious process of submitting mountains of paperwork to a traditional lender.
Hard money lenders can be equity funds, companies that have investors looking for a good return on their loans and occasionally capital funding companies that are run by families with many millions of dollars to lend.
Hard money lenders are regulated, but not to the same extent that a traditional lender is. They cannot lend money to an individual on a residential property. My clients will always borrow money under an LLC or CORP. that they already formed or we form one for them before we close. The negative aspect of these loans is that the interest rate is much higher - sometimes between 9.9%-11%. These loans are not meant to be permanent financing - they are a means to getting money to your client quickly. The positive aspect is that the loan is funded quickly and if you have a client that flips properties they will come back to you for financing on their next project. A typical hard money loan will last from 12-24 months so that the builder/investor can finish the project, sell the property and pay off the loan. Then do it all over again.
Finally, and most importantly, real estate brokers are permitted in New Jersey to collect a fee on the loan, such as a portion of the points. If you are not a Broker of Record, you would still be entitled to a fee which is negotiated with the hard money lender (and paid by the borrower) but you would need the check to go through your agency and work out an arrangement with your Broker. A real estate agent is not entitled to a fee, but a real estate broker is.
Many of my hard money loans have involved commercial buildings in NYC, Queens, Brooklyn and now in Union City. I have assisted in placing a $25 Million Dollar loan on a new 108 unit building and my real estate agency is receiving one point. I am giving this information to other brokers who may not be aware of the income they can make on hard money loans. I have represented a hard money lender as their attorney but, as the realtor-broker, you can earn much more than as the attorney for the borrower.
If anyone has questions about how this procedure woks, please don't hesitate to call me.When there is a large loan, as the one listed above, several lenders may fund the project and this is known as "blended lending."
Please feel free to call me with any questions.
Best regards,
Goldie
