In the Hard Money Game Both Borrower and Lender Are Investors

In the Hard Money Game Both Borrower and Lender Are Investors

We talk an awful lot about investors when describing what we do. The reason is simple: the vast majority of borrowers we do business with are real estate investors. They rely on hard money and bridge loans to obtain choice properties they believe they can make money on. But when you stop and think about it, they are not the only investors here. We are investors, too.

Both lender and borrower are investors in the hard money game. The two might be looking at it from different angles, but the same basic principles apply to both parties. If we were to fund your next investment project, we would be investing in that project as much as you. We would be quite interested in the success of that project inasmuch as its success directly affects ours.

We Are Both Looking for a Return

Investors love to talk about the return on investment (ROI). Not only do they want a return from every project, but they also want the return to be high enough to make the risk worthwhile. Both hard money lender and borrower think in these terms. What is the ROI, and is the project really worthwhile?

As lenders, our return is realized through interest charged on the loan. As a borrower, your return could be based on the profits from a future sale or the passive income generated by monthly rental payments. Either way, we are both looking to make a profit.

We Are Both Taking Risks

No investment comes without risks. In every single case, an investor stands to lose everything. As such, it pays to seriously evaluate risk before you invest. We do it as lenders. We expect that our clients do the same thing as borrowers. Why? Because risk is not fully understood unless it is fully evaluated.

Whenever we lend, we take the risk of the borrower defaulting. We also risk not being able to recover the full amount we loaned through asset seizure and sale. As for borrowers, they are taking the risk that their investment will not pay off. Maybe they won’t be able to sell the property down the road. Perhaps it won’t generate enough income to cover their costs.

We Both Have Long- and Short-Term Strategies

One last thing that links us together as investors is the need for long- and short-term strategies. We lenders have short-term strategies on every loan we make. In a nutshell, we want to fund loans quickly and then exit from them on time, with full payment. The long-term goal is to continually invest in one project after another in order to build wealth over many years of successful investing.

Likewise, our clients have long- and short-term strategies for their projects. Each project differs somewhat from all the others that came before. Therefore, strategies may be different from one project to the next. The interesting thing about property is that it is typically considered a long-term investment.

We Both Hate Losses

Everyone who invests knows that losses are a part of the game. However, that doesn’t mean that being nonchalant about losses is okay. It’s not. We hate losses; we would be willing to bet that you hate them too. Therefore, every decision we make has to be made with an understanding of doing whatever we can to prevent loss.

Next time you are looking to obtain a hard money loan or bridge loan, consider the fact that your lender is every bit as much an investor. The lender’s goals are similar to yours, despite being on the opposite side of the deal.