Hard money lenders lose money when borrowers default on $200K+ loans

“Hard money lenders will give anyone money, but it’s almost always been that way. [re: Lots of flippers in default]”

“I mean these banks take a huge risk loaning money out to subprime borrowers. Some credit cards are that high too, stop borrowing money for things ya can’t afford.”

“It's not a new requirement. It's actually gotten less stringent. They want to see that you ACTUALLY have the money and it's not an undocumented loan from a third party.”

“A lot of dump truck loans go south because buyer runs them to death and there is no money left to recover. Due to them needing massive repairs and calling a dump truck tow company is thousands of dollars to move, if you are talking about a real dump truck. So you got to have a lot down.”

“I am looking for a lender for a flip and fix: Under contract on a SFR in Connecticut. 355k loan needed $450k ARV. I have reserves and an 800 credit score.”

“people don't buy homes based on the home price. So how are homes marketed? Are they marketed as "$2400 per month"?”

“Had the same thing happen to me a few years ago. Finished new build was done October 2023. Was going to lose a lot to walk away so we signed and hoped to refi. Signed at 8% and watched mortgage rates like a hawk and had a lender ready to refi. Was able to refinance at 5.75% and saved $1,000/month. I got lucky but you may too.”

“so the lender pays tax on interest he never actually receives, then gifts it to the guy who owes him the money. sounds like a great business to be in.”

“Simple way to think about it: divide your LTV by the market's liquidation threshold. At 50% LTV with an 80% threshold, you get liquidated if SOL drops about 37%. SOL has done that in a week before, so 50% isn't that safe. If you want to survive a 60% crash, keep your LTV around 30%. For a $5K loan, that's roughly $16K of SOL as collateral. Also, the 20% tax only applies to your profit, so selling $5K might cost you a lot less than $1K. Worth running both numbers.”

“I never got over 30% of my collateral because I got rekt on intense swings in the past few years, but only you can determine the risk level that makes sense in your situation.”

“"Dont loan out money you cant afford to lose" Ill never have money issues ruin a relationship with this mindset.”

“yeah the 35% makes more sense to me after looking at it this way. i was thinking mainly about the interest vs tax, but the real risk is having to add collateral during a 40%+ move down. that can turn a cheaper loan into a pretty expensive one fast.”

“As long as you're looking for 500k+ we'd be a fit, and if you have 260K equity in that would meet the standard.”

“How much are you looking to finance? Perm financing or bridge/construction? We would take a look.”

“I worked in private money lending. I worked for several lenders before this one who were disorganized, salesy, and throwing shit at the wall (underwriting). It's a breath of fresh air to work for a group that does most of the underwriting up front and issues terms that are actually executable. Makes us all happier on both ends. So far, good experiences. We close more often than my old firm, but smaller deals for the most part under 10M. Open to convos with investors looking to lend or broker”

“That sounds awful to me. FWIW, that isn't the sort of relationship that would work for me.”

“Goldfinch went under Maple saw it doesn't work and pivoted TrueFi saw it doesn't work and largely pivoted The one example that still offers undercollateralized lending is Clearpool.”

“Underwriting at 2% was the right instinct, and it's the one number that decides this. At 2%, value moves slowly enough that a refi appraisal could land at or under what you're paying, whatever the market does in between. An appraiser pulls comps; the seller's growth pitch never enters it. Off market just means fewer buyers saw the house. That doesn't discount the price by itself, so you're paying market for a turnkey rental with a tenant already in place and betting on the re”

“It's a product problem more than a regulation problem. Overcollateralized lending on chain is basically a margin loan. Margin loans in tradfi also only go to people who already own the asset. Nobody asks why Schwab won't lend against your salary. The borrower you're describing (salary, small business) needs underwriting and collections, which means someone has to take credit risk and have legal recourse. Maple and Goldfinch tried it. The 2022 defaults showed the recovery path runs th”

“RWA and tokenized assets solve this problem. You just need to wait for the infra to catch up.”

“OP, you have poor mans mentality. In the world of the rich, income is not collateral, assets are, and they usually are valued beyond the amount of the loan. Same premise as defi. Using income as collateral is incredibly risky, and yet banks choose to allow it anyway.”

“Yeah, the all-or-nothing liquidation feels like one of the bigger things that could be improved. There should be a way to manage temporary volatility without wiping out the whole position.”

“On chain lending only makes sense for people with on chain assets. Attempting to borrow against real world assets like salary or businesses requires real world collections in the case of defaults. And defi protocols are simply not set up to collect on real world debts.”

“On-chain history is actually pretty reliable for reputation, but you're right that legal recourse is missing. That's the real gap here.”

“A HIGH RISK rating on a novel credit-delegation design seems right to me, and the reason is worth separating from the mechanism: it is new, so there is no incident record to price against, and the absence of a record is not evidence of safety. On pricing Credit-LP risk specifically, the question I would want answered first is what happens to the intermediate vault in a liquidation cascade rather than in the steady state. Most delegated-credit designs are fine until the liquidation path is conges”

“FYI, this has been tried on a platform backed by many VCs, ended up being a rug and they ran away with 10s of millions of dollars. Companies that were "trustworthy" didn't pay the loans back and defaulted. if you think people are going to give money to randoms online, people who don't have money and "actually need the money", is crazy. Why would anyone take the risk of giving some random a loan. The only reason this works in tradfi is because the banks can garnish you”

“i think it depends on what kind of risk you're willing to stomach more than anything. if you're lending to someone in your network irl you already know their habits and whether they pay back. on-chain reputation is still way too easy to farm or game with sybils. a wallet with six months of consistent defi activity could be one person or a bot running scripts. the legal recourse angle is the real blocker though. even with kyc you'd need jurisdiction enforcement and that gets messy fas”

“I agree.. overcollateralized lending doesn’t really help if you actually need the money. What made more sense to me was similar to OP's other comment that funding a specific person, using on-chain reputation as a signal, and keeping each loan isolated instead of dumping into a pool. I tried that on Unlloo testnet: checked the score, went through a small request. Mainnet’s supposed to be soon, so I’m mostly waiting for that before putting real size in. Default risk is still the obvious catch,”

“No way, and anyone that would lend using on-chain profile only is not smart. Uncollateralised lending needs real KYC on the borrower and legal recourse to get back the loan in case of default.”

“Yeah, makes sense. Do you think a gradual/partial liquidation with clearer warnings would work better? Curious how you’d design it.”

“They’re all speculating on appreciation. If it wasn’t for that, the real estate market here would crash big time.”

“Even 15 to 25% seems on the low end for giving a short term loan to a company with the resources to screw you over. CC rates are higher. And Im not Visa”

“My suggestion is just contacting an established lender and asking for other borrowers to get their take. Like any B2B deal, if they can't give you a list of folks that use their services and you can contact, don't use them. Full disclosure, i do work for a HM lender. You'll see who is a pleasant process and who isn't, and get a clear sense of the economics.”

Lawyer takes 60%? That’s predatory.

“Do you have income? Having a settlement (hypothetically) coming around the corner (God knows when) doesn't exactly give lenders the warm fuzzy feeling of knowing they are gonna get their money back meaning you are only getting "sharks". Maybe if you collateral your car so a repo man takes it from you when they don't get their money but that is about all.”

“Agree the off-chain part is the most opaque, but big appetite for yield worries me a bit, because in credit a lot of money chasing few good borrowers usually means weaker checks, not better ones.”

“Partly true, but I don't think it is only an on-chain problem. Token is just a claim, and in the end it depends on the loan agreement and where you can enforce it. Same loans made by a tradfi fund would also be hard to recover, so I look first at the legal setup behind the pool and at the jurisdiction, not only at the chain.”

“Real time default data only helps if the protocol survives long enough to show you a full cycle. Most of these launched after 2021, so nobody has watched a proper recession run through the book yet. I guees named servicer point is the right filter though. Who knows.”

“the recovery part is the bit most protocols gloss over. everyone loves saying "defaults tracked in real time" but that tells you nothing about how long recovery actually takes or whether the servicer even has legal standing to enforce in the borrower's country. most of these docs spend way more time explaining the tokenization than what happens legally once a loan actually goes bad.”

“Goldfinch and Maple both had real defaults once borrowers stopped paying and no legal recourse could actually be enforced, this is what onchain has at an disadvantage”

What's a hard money lender? As opposed to what other kind?

“Not the whole job, I would say. For me the first question is still who picks the borrowers, because a good servicer only reduces the loss. If the loans were bad from the start, he can't fix that. About real time tracking, it helps but I would not overrate it. You see the loan going bad earlier, but on most protocols you can't exit the pool anyway. So you just watch it faster.”

“Good luck with all that debt. We were as optimistic as you and then sales collapsed instead of growing and we couldn't keep up with the payments. When you say you will make $150K, what about taxes? And have you been paying your EIDL?”

“I’ve never used hard money loans. The high interest rates make a bit nervous.”

“Yes refinance for $0 and start over with a 30 year loan. Make the situation worse.”

“You contradicted yourself, you talked about interest rates being high so u can’t make deals cash flow and that creative financing is key. Creative financing means higher leverage and people buying these properties are typically doing low down methods making the loan to value % higher which makes cash flow worse. Creative financing is only good if u can get it under value”

You are working for these lenders.

“Sure if I was to evaluate OP's portfolio: They are at a 73% LTV across 4 SFH. Gross rents of 19,800 and mortgage obligations of 15,500 doesn't leave much of anything to cover ordinary operating expenses, one unit vacancy or turnover. They are trying to convince themselves that forking over a couple of grand in an emergency is worth it because of appreciation and debt paydown.”

“Your argument is correct, but the price of performance is risk, my argument is that this isn't a free lunch. Fixed interest mitigates some of the risk, but in reality the higher the leverage ratio, the less likely fixed interest is to be available. Fixed interest is not always a given, in OPs current scenario cash flow is so poor that an unexpected repair could force a refinance.”

Exactly our plan. Any basis step-up via our deaths will be an accident.

“alot of commentsi n here misses the forest for the trees. interest rates are really important. the primary role of real estate is hedge against inflation. if you can borrow money at 4% but property value goes up (mostly due to inflation) 6% you net 2% of the overall value on the loan. also the 4% can often be tax deductible on whatever marginal bracket you are in effecitvely costing you less than 3% to borrow that money. paper depreciation is also much greater than reality where the property app”

“Just curious what are your minimum criteria is it based on how many properties the borrower holds, total value of assets, years in business?”

“I've had 0 defaults so far, but I've been doing it only about 8 months. I've made 18 loans total, 15 active, 3 paid in full. I'm pretty careful about who I loan to, which becomes much harder as you scale. I anticipate defaults in the next year or two as I grow, but so far 0%.”

What percent of your customers would you say default on those loans?

“I feel like the biggest question is whether the extra return is worth taking on the additional risk”

“No, its not odd - vast majority of states (like around 40) do not require NMLS licensing for Business Purpose hard money”

Have you loaned money before?

“Im looking for a private mortgage investor looking to make 8% on $225k 2nd mortgage 3 to 5 yr note against a 2 fam property i own in Orange NJ. It will still have about $269k in equity afterwards. Please let me know.”

“Im looking for a private mortgage investor looking to make 8% on $225k 2nd mortgage 3 to 5 yr note against a 2 fam property i have in Orange NJ. It will still have about $269k in equity afterwards. Please let me know.”