Reason 1. Your residential deal requires or you need long term financing. Typical residential deals are 90 – 180 days whereas some commercial, industrial and land can be 12 – 60 months.
Reason 2. *Property value as is or upon rehab completion will not sustain the profit ratios most hard money lenders are accustomed to.
A quick rule of thumb:
*Property Value = $100,000.00
Property Equity = $50,000.00
Hard Money Lender May Loan $15,000.00 to $20,000.00 staying within the 65% – 70% range of property value.
( $100,000 x 65% = $65,000 )
( $65,000 – $50,000 = $15,000 )
Reason 3: You Say No! One of the reasons you say no is because you may have not had any experience with a hard money loan and the term and interest rate seems to be more than what you are accustomed to. A hard money lender has a lot to lose if you fail to keep up your end of the deal. To protect their investment rates are often 10 – 18% and they also include points to be paid upon satisfaction. All in all a hard money deal in some cases is the best way to go.