Hard Money Myth #5

Hard money lends 100% of your purchase and rehab costs

The reality:

This is the “skin in the game” concept.  It used to be, in an appreciating market, that it was easy to find 100% financing, even with hard money.  Not any more.

If you are borrowing all of the purchase money, and all of the rehab funds, and you run into a problem, what keeps you slugging away to get the deal finished?  Your own stake in the project, that’s what.

While it’s great to know that most of us are 100% honest and have great intentions, the reality is that most of us need motivation to keep grinding away at a solution to a problem with a project that has gone bad.  It can be unexpected repair costs, unexpected building inspector requirements, sudden market declines, bad weather, bad timing, seasonal fluctuations, health issues, whatever.

There are many factors that turn a project from profitable to the pits.  Knowing that you will stay engaged to get your capital back keeps us all in the game with you.  It’s not a warm and fuzzy post, but this is why you will sometimes have trouble funding a deal that looks like a no-brainer to you, but a possible money pit to the lender.