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The End Of ‘Hard Money’

The End Of ‘Hard Money’

The NPLA has resolved to do away with ‘hard money’ lending. Why are they doing it? What options are still available for real estate borrowers and debt investors?

Resolving To Do Away With ‘Hard Money’

The NPLA has recently voted on a new resolution to do away with the term ‘hard money’. 

Hard money was a term used in the mortgage industry and real estate lending space for decades. Most often referring to asset-based lending. 

The association and its members will now focus on using other terms to describe and differentiate themselves. Such as ‘bridge lending’, ‘’transactional lending’, and ‘private lending’.

Why Do Away With Hard Money?

For some, the term hard money has had negative connotations. It was associated with high-interest rates. Some bad actors may have given it a bad name, in that they were loaning with the intent, or at least hoped they would get the property in a ‘loan to own strategy. 

Today’s members of the NPLA do not want to be associated with these loan shark-like practices. Nor any perception of being linked to groups that may be involved in predatory lending. Like payday loan companies. 

The NPLA

The National Private Lenders Association (NPLA) is a professional industry association. They create and adhere to a code of ethics. As well as working to preserve the industry, and influence federal policymaking. 

The Evolution Of Hard Money: Hard Money Is Dead

For those familiar with the industry, this change seems to make a lot of sense. Hard money lending certainly doesn’t appear to exist as it once did.

Before the 2008 crisis, hard money was the term of the day. Lenders would typically loan completely based on the real estate asset alone. As long as there was a property there, they would make a loan at a relevant LTV. There was typically zero borrower qualification.

Most hard money lenders were very local. Simply loaning on properties that they could drive to, and on a small scale. 2008 changed everything.

Then we saw the birth, growth, and expansion of new lenders, with new loan products. Often with a hybrid approach to underwriting deals and terms, which strikes a better balance between the needs of the market, and managing risk and profitability for lenders. 

Founder of the NPLA, Leonard Rosen credits this change and the rise of the private lending space with shifting regulations. In particular, the JOBS Act. After 2008, banks just couldn’t make the loans they would have liked to due to regulation. Until the JOBS Act, it was harder for private lenders to raise capital. 

Today, private lenders fill the void left by banks. Being able to be more aggressive in loan terms, and closing fast. Enabling more individual investors to participate in private lending investments also means lower risk, more efficient, and more profitable asset class and financial tool for all involved. 

How Real Estate Operators Can Leverage Now

Real estate investors looking to borrow now will find options like:

  • Bridge loans for the ground-up construction of 1-4 family houses
  • Residential fix and flip loans
  • Multifamily bridge loans for renovating and stabilizing 5+ unit properties
  • Individual and portfolio loans for rental investment properties

Private Lending Options For Debt Investors

Not only have the loan products changed but so has the whole infrastructure of the industry. 

There are now massive vaults of institutional capital being opened to fuel lending in this sector. In turn, there is a whole new secondary market. 

On the customer-facing end, there is a new breed of sophisticated private lenders who operate on a much larger volume and geographic scale. In turn, they can offer better deals and services in many respects.

Individual private investors can now participate in this passively through funds (like this one) that simply give them the returns they crave, without any of the hard work, or taking on the risk themselves.