We're out in the market for financing and I keep hearing this term thrown around by brokers.
What exactly is "hard money" and how is it different from normal balance sheet lending from banks or life companies?
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1. Hard money can be a deposit you put down for debt or a purchase that’s non-refundable. Known as “going hard”.
2. Hard money can also be your more senior debt. At least in affordable, your soft financing is your gap- usually subsidies from local municipalities. It’s soft because it’s subordinate to the hard money, and it’s also usually forgivable.
may be able to help a bit more if you can provide a bit of context as to how they’re using the term?
Non-refundable deposit needed to secure a PSA with seller. They do it so that they know you’re acting in good faith and not to waste seller’s time.
It's a dogshit loan product for desperate buyers. double digit interest rate with exorbitant fees (2+ points plus prepay penalty in most cases). in most environments its only used for smaller deals or to take down land/pre-dev period to bridge you to construction/reno. In today's environment, most lenders are charging hard money rates cuz they can and capital markets are mega f'ed.
This is the correct answer
hard money is similar to bridge debt (but even more flexible), when your asset is not yet perm financing ready. You get shorter term, higher rates and they will look at borrowers with not the best credit history, borrowers with hair if you will
How does a retail investor get to participate in the action without 1) being a part of an institution and 2) having to become what would essentially be a loan shark.
they raise money on a deal by deal basis. just call the company up and say you want to invest.
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