Loan-to-value (LTV) ratios are as common to hard money as they are to traditional lending. Rare is the hard money lender who routinely offers 100% financing. Unfortunately, it is not uncommon for investors new to the real estate market to request it. If you’re just getting your feet wet in real estate, know this: it is unwise to request 100% funding for your project.

Also note that hard money lenders want you to succeed. We offer asset-based lending because we know it is one of the most powerful funding tools real estate investors can leverage to build a strong portfolio. But asset-based lending is a shared risk scenario. You take some risk; we take some risk.

We Cannot Take It All

Except under exceedingly rare circumstances, hard money lenders cannot afford to take all the risk on themselves. We have an obligation to protect our business and the investors who fund it. To that end, sound financial practices dictate that we require borrowers to assume at least some of the financial risk on their projects.

By putting some of your own finances into the deal, you are demonstrating a willingness to take some risk. You are also demonstrating that you believe you can make a reasonable return on the project in question. That gives us added confidence in what you’re trying to achieve.

We Hope to See a Strong Financial Position

Although we don’t turn over every stone to investigate a borrower’s financial position, we do hope to see a strong position evidenced by the way a borrower does business. It is hard to get there if a borrower requests 100% financing. Why? Because such a request suggests a measure of financial weakness. It suggests a borrower doesn’t have any money to put into the deal. That’s not a good position to be in.

We Hope to See Some Proven Experience

Hard money lenders are not necessarily averse to lending to brand-new investors. After all, you cannot become an experienced investor without buying a few properties. Still, a request for 100% financing suggests a complete lack of experience altogether. That gives hard money lenders pause for concern.

Successful real estate investing is part knowledge, part experience, and part luck of the draw. Knowledge and experience are things investors can control. The more proven experience an investor has, the more confidence lenders have in approving that investor’s loan requests.

We Want to Build Long-Lasting Relationships

Hard money is an industry built on relationships. Many of our clients have returned to us time and again over years of investing. That is exactly what we want to see. Long-lasting relationships benefit everyone, which is why they are so valuable in our industry.

In light of that, asking for 100% financing starts a new relationship off on the wrong foot. Our goal is to avoid that. We want to do everything we can to help new investors make money in real estate. But any relationship we build needs to be built on shared risk and responsibility.

Become a Student of Hard Money

You now know why it’s unwise to ask for 100% financing on your project. Take what you’ve learned from this post and combine it with as much information as you can find on hard money lending. Become a student of hard money so that you fully understand both sides of the equation.

Hard money could be your most valuable tool for growing your portfolio. Like any tool, it will work its magic if you use it properly. That includes sharing the risk and responsibility by putting your own money into each and every project.