Hard money loans can be outstanding investments when adequately secured. These loans can be issued by individual investors or companies.
Hard money loans are asset-based loans secured through real estate, and the interest rates on these loans are definitely higher than through that of a bank. Obviously, with higher interest rates, there is usually a higher degree of risk to the lender. Hard money loans are similar to bridge loans, with bridge loans being associated with commercial property loans or investment property loans. Where a bridge loan may be transitional form of financing prior to a traditional bank loan on a commercial property, a hard money loan is usually associated with a property that is distressed, failing to keep up with mortgage payments, and where a bankruptcy or foreclosure may be occurring. In simple terms, one may think as a bridge loan as bridging one from point A to point B, and a hard money loan more so for “hard” situations.
The reason why these loans can be attractive to an investor is that they are usually heavily collateralized by the property. It isn’t that the borrower’s personal finances, credit ratings, etc. do not make a difference to the investor, but in some respects, it may not be the driving consideration.