Mortgage Myth #3 - Hard Money (Private Investor) Loans

2012 MORTGAGE MYTH #3

Hard Money (aka Private Investor) Loans are a bad deal –  Opportunity abounds for Real Estate investing throughout the country.  In certain areas, like Las Vegas, property values are disproportionately low, compared with rents.  So even with a Hard Money Loan at 12% interest, the interest only payment can still be very favorable.  Take this example:  A client buys a rental property for $80,000 with 25% down.  The payment is 1% interest only - $600 per month.  Assuming taxes and insurance are $120 per month and the home rents 11 out of 12 months each year for $1,000, the home would have a positive annual income of $2,360/year.  Assuming $12,000 in acquisition costs and initial repairs, the total initial investment is $32,000.  The resulting Return on Investment is 7.375%.  This is for illustrative purposes and it shows a realistic scenario where even a Hard Money Loan can be beneficial to a client.  Of course all investments have risks and clients should consult Professionals before investing.