What to Look for in a Hard Money Lender
July 12, 2010 
8 Comments
Hard money lenders can save your deals because they are able to give you the money quickly as opposed to traditional lenders that have to follow much more strict guidelines. So you need to establish a relationship with a hard money lender fast so you won’t lose your investment opportunity. Even before you identify a property, you should be lining up your hard money lenders. Your hard money lender should be able to loan you up to 70% of the fair market value of what the property would be worth after you make repairs and fix it up. An example would be if you buy a property for $50,000 and you rehab it so that it is now worth $100,000, the lender would loan you at least $70,000.
Make sure that your lender is not charging too high of an interest rate, and gives you a long enough period of time to repay the money. Typical rates vary from 12% to as high as 20% per annum, and loan terms vary from 6 months to a few years. A good lender will give you a long enough period of time to repay the money because they understand market conditions. Your lender should not charge more than 2-10 points for using their money. Avoid lenders that charge pre-payment penalties. A reputable hard money lender will make sure that the terms are fair for both of you.
Some lenders may ask you for credit information such as copies of your tax returns and your paycheck stubs or W’2’s or 1099’s. National hard money lenders usually require this information. A local hard money lender will probably be more concerned about the transaction and will just drive by the property. The more you do business together, you will build trust. Building trust with your lender is important because you want to be able to use them, and they want to do business with you also. It’s a good idea to have a couple lenders that you can go to.
Hard money lenders are great for new investors that don’t have cash. Using someone else’s money to buy the property, rehabbing and then walking away with a profit is what it’s all about. To find a hard money lender, you should get a referral from another investor. Joining an investment club is also a good place to find a lender. There will always be hard money lenders around for you to get to know. Also, you can look on the Internet or in the newspaper. Your title company, real estate agent or attorney may know someone. Just like any traditional mortgage, shop around until you find the best lender with the best terms. You want to be able to establish a long term relationship so you always know you have cash available to do a deal when a good opportunity arises.
Great post! Especially apllies to new investors like myself. I’m still trying to make that connection with a lender who is reasonable and fair.
As always – great post Susan!! Referrals are ALWAYS the way to go as a real estate investor but when it comes to hard money lenders I think it’s more important than ever. There are some pretty tough people to work with in the hard money business so you want to find the good ones that treat you fairly. You’re right about asking around at the local club meetings …
A very informative post, thank you! Do hard money lenders typically ask the borrower to make a down payment to have “skin in the game”?
Usually, yes. You will find some 100% hard money rehab lenders but the deal has to be smokin’ and they are *really* expensive.
Hi Lassiter
I’ve been looking for one of these 100% hard money lenders. Let me give you an example of a smoking deal; or shoot me down if I’m mistaken.
206 self storage facility recently appraised 750,000. Absentee owner currently 50% OCC
purchase price
475,000
10% down 0 payments/ interest 8 months 5 year seller carried note after the first 8 months.
future value @ 85% OCC
1.2 million
NOI $110,000
What do you think?
I need actual numbers to determine if it’s a good deal or not – not future values/NOI. At 50% occupancy you’re looking for a 10% down loan? Probably not a good deal initially in the eyes of a hard money lender. This is a good example of how important SPECIFICITY is in the eyes of a lender or potential investor. No one really cares what it MIGHT do. We only care what it IS doing. BE SPECIFIC in your questions and requests and you’ll get much better answers.