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» Who Funds Hard Money Real Estate Loans?
Hard money real estate lenders fall into two camps - institutionally funded and investor funded. Institutionally funded lenders get the money they lend from banks, retirement funds, and other investments sources who are looking to place a portion of their portfolio in real estate. Investor funded lenders may consist of a single wealthy individual who funds loans using real estate as collateral (someimtes called an Angel Investor) up to large REITS (real estate investment trusts) which may sell shares to investors on the stock exchange.
In all cases, the general lending process is the same: the lender uses real estate as collateral. The real estate is reviewed to determine whether it holds sufficient value for the lender to be willing to take the risk of making a loan based on this collateral. The borrower's financial state and future potential is reviewed to determine the risk factors there. And finally, an exit strategy is reviewed to determine whether the loan will be completed satisfactorily within a given time frame. Depending on the results of this due diligence process, the lender determines whether - and at what rates and terms - to fund the loan.
