What is a hard money loan?

A “hard money” loan is very similar to a mortgage, just offered by a different party and for a slightly different purpose. They are much more flexible than standard mortgages, and can help fill gaps for situations that don’t “fit,” such as like flipping a home, repairing a commercial property, or working around credit issues or a prior bankruptcy. Much like a mortgage, they use real estate as collateral, and have specific timeframe, interest rates, and an application and approval process. However, unlike mortgages, hard money lenders typically won’t lend on your personal home, and hard money loans often mature in 6 to 24 months instead of 15 to 30 years.

Why not get a traditional loan or mortgage?

Mortgages and loans through large, traditional institutions like banks are heavily regulated, take a long time to setup, and are designed to be paid off slowly over a long period of time. There are very specific parameters for what properties banks will mortgage and who can qualify. Hard money loans are intended to fill the gap around traditional loans. They are ideal for established borrowers seeking a short-term loan for a specific purpose, especially when they need to be flexible or move quickly.

Are hard money loans bad?

Hard money loans are not bad, shady, questionable, or in any way negative. While there may be some unscrupulous lenders in the space, hard money loans are a valuable tool when used properly that can open opportunities and make a lot of money for both the borrow and the investor. BST Capital only accepts borrowers and lenders who are in a strong position to succeed and complies with “bad actor” regulations to help prevent malicious lending.

Are hard money loans the same as private loans or bridge loans?

Hard money loans are an example of one type of private loan, just as a bridge loan is an example of one type of hard money loan. The most common hard money loans are to fix and flip homes, or to provide working capital while a person or company negotiates a more traditional loan, which is commonly known as a "bridge loan." However, hard money loans come in a variety of shapes and sizes and serve a variety of purposes. If you aren’t sure whether your needs fit the model of hard money lending, feel free to reach out and we’ll find out if we are a good fit for what you are seeking.

What is LTV? What are Points?

LTV stands for Loan To Value, which is a percentage of a property’s fair market value, or what you can sell it for. Points are a percentage of the total loan charged as a fee for setup. To illustrate, if a borrower wanted a loan and had a property worth $100,000, then the maximum that borrower could borrow is 75% LTV, or 75% of the value of the property, which would be $75,000. The terms to borrow the $75,000 would be 12% interest and 2 points, or 2% of the total value of the loan, which would be $1,500. Putting this all together, the borrower could receive a maximum of $73,500 (($100,000*75%)-2%) and would have to pay $750 (($100,000*75%)*12%/12) per month in interest until the loan was paid off.

What is a lien?

A lien is a claim, or a legal right, against a property used to secure a debt until it is paid off. A property cannot be sold until the debts are satisfied and the liens are released. If a debt is not paid, then the lienholder may be able to take possession or control of the property as repayment. The lien is what protects the lender.

Are liens bad?

Liens are not “bad” and usually have no effect on a property as long as the debt that the lien secures is paid in full. Liens are customary tools to secure a debt and are used in traditional mortgages, car loans, etc. They protect investors and are actually good for borrowers too, since they provide straightforward security so people will be willing to invest money and borrowers will be able to borrow money more cheaply.

What does first and second position mean?

First position or second position can refer to the order of lienholders against a particular property, if there is more than one lien against the property. In other words, a creditor who would get paid first if a property was sold is in the first position, and a creditor who gets paid only after that first creditor has been paid in full is in the second position. All of the loans that we facilitate use first position liens.

What if I have more questions?

We are happy to answer them for you. Contact Us today

What is a hard money loan?

A “hard money” loan is very similar to a mortgage, just offered by a different party and for a slightly different purpose. They are much more flexible than standard mortgages, and can help fill gaps for situations that don’t “fit,” such as like flipping a home, repairing a commercial property, or working around credit issues or a prior bankruptcy. Much like a mortgage, they use real estate as collateral, and have specific timeframe, interest rates, and an application and approval process. However, unlike mortgages, hard money lenders typically won’t lend on your personal home, and hard money loans often mature in 6 to 24 months instead of 15 to 30 years.

Is a hard money loan right for me?

Hard money loans are right for people who know how much they need and for how long. Unlike a traditional mortgage, the point of a hard money loan is only to keep the money for the shortest amount of time, not to drag out payments for longer than most people will stay in the property. Also note, the property cannot be a primary residence or an owner-occupied residential property.

When is a hard money loan a bad idea?

A hard money loan is a bad idea if you are simply looking for additional capital but do not have any intended use for that money. A hard money loan may also be a bad idea if you are uncertain how much money you need or how long you may need it.

Why are interest rates so much higher than traditional mortgages?

Interest rates are higher than traditional mortgages because the loans are much shorter and don’t consider the credit of the borrower, instead being secured by real property. But, even though the interest rates are higher, a typical borrower pays much, much, less in interest over the life of a hard money loan than a traditional mortgage. For example, a homeowner with a $300,000 30-year mortgage and a 4% interest rate will pay more than $215,000 in interest before the debt is paid off. A borrower of a $300,000 hard money loan at 12% interest might only pay $36,000 in interest before the debt is paid off. Hard money loans are right for people who know how much they need and for how long.

Where does the money come from?

Money comes from an investor or group of investors depending on the type and amount of loan. For many loans, a single investor will provide all of the money received by the borrower, and that investor will receive the payments made by the borrower.

How long does each loan last?

Most commonly, 6 to 24 months. If you want a shorter or longer term, please contact us.

How do I qualify?

Every loan is different, so apply today to get an answer to your specific situation. You can review the loan terms and required documents on our Borrowers page as a reference for what type of information you will need to move forward.

What if I have bad credit or have had credit problems in the past?

Your credit is not a factor when determining the viability of a potential loan. Rather, we look at the valuation of the underlying property, market conditions, the intended purpose, and other similar factors. You can still get a loan if you have bad credit, as long as your property and business case are solid.

How long does it take to close?

The time to close will vary depending on the structure and amount of the loan, but most loans will close in 7 to 14 days, with some loans in as little as 24 to 48 hours.

What if I don’t have a preferred Title company?

No sweat. Just let us know and we’ll recommend one we’ve worked with in the past.

How will I receive the money?

After completing the loan process, the money will be wired to the designated account of your choosing.

What if I pay the loan off early?

Congratulations! There are no prepayment penalties, so if you pay off the loan early you are free to move on to your next project, no strings attached.

What if I need more time to pay off the loan?

If you anticipate needing more time to pay off the loan, please contact us as soon as possible to renegotiate the terms of your loan. If you wait until the last minute, there may be nothing we can do to help you.

What happens if I miss a payment or pay late?

The best place to answer this question would be the loan documents specific to your loan. A grace period may be provided to account for a delayed payment or late fees may apply, but generally an unnoticed missed payment will qualify as a default on the loan.

How can I get started?

Submit an application

Are hard money loans a safe investment?

Every investment has risk. However, hard money loans are relatively “safe” because the debt is secured by real property - a.k.a., land. Land cannot be lost or hidden, and will always have value, which generally increases over time. Also, the loans we offer are no more than 75% loan-to-value, meaning there is always a 25% buffer in case the loan is not repaid.

How can interest rates be so much higher than other investments?

Interest rates are higher because of the nature of the loan and the process involved. Unlike banks or other traditional lending institutions, hard money loans involve a simplified due-diligence process (because the asset is what matters, not the borrower) and are for much shorter terms than the traditional 15 or 30 year loans. Borrowers are willing to pay more for the relatively-quick access to money, short terms, and flexibility in prepayment.

Who can invest?

To invest, you must meet the SEC definition of an “accredited investor.” Generally, this requires either an annual income exceeding $200,000 ($300,000 for joint income) for the last two years with the expectation of earning at least the same in the current year, or a net worth exceeding $1 million. Additionally, an entity entirely owned by accredited investors or with assets exceeding $5 million also qualifies.

Is there a minimum investment amount? A maximum?

Because of the process to verify an accredited investor, the minimum investment amount is $50,000, though this may vary depending on the offering. There is no maximum investment amount, you can invest in multiple loans for as much capital as you want to contribute.

How do I fund the investment? How will I get paid back?

Investing is relatively simple. First, we will need to make sure you appear to meet the requirements of an accredited investor. Second, once verified and you choose which loan you want to invest in, we will send you the necessary paperwork to review and sign. Third, once you sign the paperwork, you will receive instructions for where to wire the funds. Once you’ve wired the funds, that’s it! You’ve successfully funded your investment.

Getting paid back is even easier, and we take care of almost everything. Each month interest will be deposited into your designated account and you will receive a monthly statement, if appropriate, and once the loan matures or the borrower pays it back, whichever comes first, we will take care of the necessary paperwork and deposit your money into your account. You will receive a final statement summarizing the entire loan with each deposit and how much you earned.

How often do I receive payments?

With most loans, you will receive a monthly interest payment, and the remaining balance of the loan will be paid in a balloon payment upon maturity, which may vary between loans.

How is this different than Real Estate investing? Is this a REIT?

We are not a REIT and you are not investing in one. Rather, you are loaning money directly to a borrower, either individually or collectively with other investors. We facilitate this process by performing the necessary due diligence and ensuring the investors receive their share of the proceeds. This is different from real estate investing because you do not purchase or sell property directly, and the security interest in the property is simply insurance against the possibility of default.

Should I invest in hard money loans or the stock market?

This depends on your personal portfolio and the type of investment you seek. Unlike the stock market, hard money loans offer a fixed return and are secured by real property. Also, on average, hard money loans offer a higher return that the stock market, and may deliver steady monthly income. However, hard money loans require a higher initial investment and the principal of that investment is committed for the duration of the loan. Hard money loans can be a great way to diversify a portfolio.

How long does each loan last?

Most loans last between 6 and 24 months, but that can vary on the offering and can always be paid off early. You will be able to see all of the loan information up front before making any decisions.

What happens if a loan is paid off early?

If a loan is paid off early you are free to reinvest your money into a different loan. If possible, we will notify you as soon as the borrower has indicated he may pay the loan early, to give you time to review your available options. If you wish to reinvest your money, the process will be simpler and easier than the initial investment.

What if I want to exit early?

Because of the nature of the agreement with the borrower, you are not free to terminate the term of your investment early. However, if your circumstances have changed, please reach out to us and we will see what we can do to resolve the situation.

What happens if the borrower stops paying or defaults?

If the borrower stops paying or defaults, we will foreclose on the real property to recover the principal, plus interest and any expenses. Though this may extend the time for you to recover your initial investment, in most cases you will earn an even higher return than you would have because of the default interest rate and because we ensure all the properties you invest in are worth more than the amount you invested.

How can I get started?

Contact Us Today

What do you mean by "stable" and "performing?"

A performing note is one where the borrower has been making all payments on time and is not in default. A larger down-payment and at least a few months of successful payments are a strong indicator that the note is "stable" and the borrower is committed and capable of continuing through the term of the loan.

Why would someone sell a performing note?

A performing note is a valuable long-term investment, but sometimes you need capital now and don't want to wait for the note to mature. We provide a simple and easy way of converting your note to cash.

Do you buy non-performing or delinquent notes?

Not usually, but you can still contact us and explain the situation, especially if the note has a long history of performance. We evaluate each note individually, so it never hurts to ask.

What is the difference between a mortgage, a note, a loan, a trust deed, etc?

A "mortgage note" or "trust deed" is a type of security or "lien" against a property that is used to secure a loan. A "hard money loan" is like a private mortgage on a property. See our FAQ page for more information.

Do you buy the notes at face value?

The purchase amount will be based on the remaining or unpaid principle balance ("UPB"). Generally existing notes are purchased and sold at a small discount, which covers processing costs and helps protect the buyer from an early payoff. We will make you an offer after reviewing the loan information.

What documentation will I need?

Nothing up front, just send us a message with the loan details (original amount, interest rate, original funding date, maturity date, property address, and remaining principle balance) and we will get back to you if we are interested in exploring further. If so, we will provide you with a secure link where you can upload the loan documentation. We will want to see most everything you reviewed at the beginning of the loan (appraisals, the purchase agreement and closing statement, the note itself, etc) as well as a recent statement showing the payment history (usually from the loan servicer) and evidence of insurance if applicable. Don't worry, we will guide you through everything.

Why would I buy an existing note instead of a new note?

Even with a good due diligence process, a new note is an unproven commodity. By buying an existing, stable note removes some risk and is a more conservative way of securing long-term, passive cash flow.

How do I get started?

Contact Us Today

Who are you guys?

BST Capital is a family team based entirely in the United States that seeks to simplify and improve the private lending space. Between us, we carry over three decades of investment experience, over two decades of real estate experience, over a decade of business executive experience, and half a decade of legal experience. BST Capital synergizes these complimentary skills to provide a streamlined and professional borrowing or lending experience unlike any other.

Is your system secure? Is my information safe?

Yes. BST Capital utilizes enterprise-grade services to ensure all information exchanged is safe and secure. All of our document exchange is encrypted and we never ask you to email anything sensitive (watch out for companies that do!). We only use your information to evaluate and close the loan, and will never share or sell your information for any other purpose.

What if I have more questions?

Didn’t see your specific question in the list above, or just feel like talking to a human on the phone? Feel free to contact us any time.