Smaller investors are entering a market that big banks used to dominate.

Tighter lending standards are driving borrowers to hard money loans. Historically, super-secure, first lien mortgage investments were only available to institutional lenders, but that’s starting to change. In the world following the financial crisis, banks have deserted investor borrowers with less than pristine credit. Hard money lenders are making up the difference.

Hard money loans are becoming more mainstream.

Boutique mortgage lenders are reshaping the market for real estate investors. Banks have retreated from many commercial and real estate investment loan products, and these hard money loan investments are now available to private investors.

First lien mortgages are exceptionally safe.

If the borrower doesn’t pay, the lender forecloses. Hard money lenders also require significant equity. On a $500,000 home, we would only extend $375,000 credit (75%). The property would sell quickly for significantly more than the loan, so a borrower who can’t pay the interest could easily liquidate the property. This is why hard money lenders care more about the real estate asset and less about the credit, wealth, or income of the borrower.

Texas foreclosures are fast and strict.

The foreclosure process in Texas only takes about 45 days and there is no redemption period. At the foreclosure auction, either (1) someone will bid the loan amount or more or (2) the ownership will go back to the lender and the lender can sell the property on the open market.

Hard money loan investments earn 8% to 12%, without getting their hands dirty.

No watching stocks, managing contractors, or dealing with tenants. You’re just collecting interest payments – boring, stable, and secure. To earn 12%, you’ll need at least 500k to invest, but 8% to 10% is accessible for many investors.