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Another factor would be if borrowers’ credit could not support the loan when a property is in foreclosure with significant verifiable equity. A hard-money loan that includes reserves for current payments could allow borrowers to repair their credit and refinance or sell the property and realize the equity.
The ability to find and structure the right transactions that result in an acceptable rate of return and risk profile is key. With hard-money loans, speed is of the essence. It is imperative for management to be able to quickly assess the risk and to close rapidly.
Prudent management is critical in order to avoid a bubble and not take in too much capital from investors. This may result not only in the dilution of returns but also in the potential for deal-chasing, which increases the portfolio’s risk profile.
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