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Hard Money Lending

In January of 2016 I was referred to someone in need of a loan. Funny story the person who referred me is someone that I actually did a hard money lending opportunity with on their mortgage. Regardless, the borrower had gotten behind on a few bills (including his mortgage) that severely damaged his credit. Long story short, he was in desperate need of $10k and the banks would not approve him for a loan. This left him with 2 options. 

 

The first option would have been to go to a Pay Day Loan advance type company. This wasn’t appealing to him (or anyone) because of the outrageous interest rates, high monthly payments and mickey mouse paperwork that comes with it. The second option was to get involved in a hard money lending opportunity with me.  

 

You see, this particular borrower was a realtor and in a down cycle of his business year. I work specifically with real estate professionals and understand their cyclical incomes (I was a mortgage officer for over 10 years, after all). November – February are typically extremely lower revenue months than that of March – October.  

 

The borrower was in desperate need of $10k to catch up on his bills and make an effort to get his credit back up. After much discussion, I found that this would be a good fit for me to provide a hard money lending opportunity to him.  

 

When I was presented this opportunity I could have originated the $10k for the loan in two different places.  

 

  1. Come out of pocket from a checking/savings account 

  1. Leverage the money from somewhere else while my $10k continued to grow.  

 

Knowing that the same $10k, if growing annually at only 4%, compounds uninterrupted for 50 years it grows to $70k, I decided to leverage money in my cash value insurance policy to use the insurance company’s money for the loan while my dollars continued to compound within the policy.  

 

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I had access to those dollars immediately, without penalty or income tax, at a 5% interest rate. It was a no brainer. I decided that paying $500 in interest to the insurance company was worthy of allowing my dollars to continue to compound because, after all, I’m not afraid to think long-term and you shouldn’t be either.  

 

It ended up being a great opportunity for both parties. Not only did I gain a 26% return on my money (in reality it was much, much higher because of how I leveraged my money in the loan) but he was so pleased with the opportunity that he called me just 3 months after he repaid the loan to do another for him. Now that is velocity.  

 

When seeking hard money lending opportunities, it is extremely important that you find really good collateral. As you can see in the case study by clicking below, I had a free and clear asset valued at around $30k. I also put myself in the right position to have that asset in the event that the loan was not repaid upon my terms. 

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