Why Borrowers Use Hard Money/Our Lending Model
Herzer Financial Services, Inc. originates and services private money real estate loans. Our rates are much higher than most banks and we have been asked many times why a borrower would pay such rates. We find that the reasons fall into three general categories as described below and in all three categories “speed” is often a main factor.
The property is not “bankable”: There are several physical and non-physical reasons a property may not qualify for a bank loan.
- The property might be under renovation.
- The City or County may have “red-tagged” the property for a violation.
- If the property was recently listed for sale a bank will not lend on it.
The Borrower is not “bankable”: In this era of regulation there are many reasons a Borrower may not qualify at a bank, especially for loans secured by 1-4 residential units. The Borrower may be a corporation, irrevocable trust, partnership or other entity. Or the Borrower may have issues with their income or credit, seasoning of assets, income gaps or they may be a foreign national.
The loan structure or type is not “bankable”: Some loans require us to use multiple properties as collateral, too complicated for a bank. Banks do not like short-term loans such as bridge loans or “fix and flip” loans. Some banks will make construction loans but will not lend to spec builders or owner builders.
Many loans have elements from more than one category and almost all of the time borrowers turn to us because we act with speed and come up with a make sense solution. For instance, our construction and rehab loans are often to an LLC with a guarantor that does not have strong tax returns. If the builder and its partners are willing to make a large down payment and have a proven track-record of building/rehabbing homes that sell, we will likely make the loan.
Unlike banks who drag out the loan process, we act quickly. We are fast to turn down loans that have insolvable problems or are just not a fit for our investors. Borrowers appreciate getting the bad news just as quickly as the good news. We act with speed and integrity, the main component of why borrowers have been turning to Herzer Financial for over seventy years.