Becoming A Hard Money Lender

Right at the core of a good real estate investment plan is becoming a hard money lender. There is always danger involved in loaning money but being a hard money lender literally opens up a new way to being a successful real estate investor. Being the one who does the lending puts the control into the investors hands and also provides the opportunity to earn a much higher rate of return on any investment he makes. As you can see there are several ways to make money in real estate investing that involve more than just flipping properties.

To become a hard money investor it is necessary to take a good hard look at the source of the investment opportunity. Your money that you use to invest may come from your IRA or from savings. If your source is hard money brokers or trust deed there is an investment minimum that you need to meet. This minimum can be as high as $100,000 or as low as $5,000. Your choice will be your own comfort level remembering that any loan investment is a risk. It may not be prudent not to put all your eggs into one basket. There will be other deals that will come along.

Becoming a hard money lender means that your cash on hand needs to be more than if you were investing with a trust deed firm. You will of course need to have good legal advisers that can assist you in drawing up your appraisals, underwriting, loan documents, loan servicing, and title services. To find hard money financing firms with investment opportunities, an online search will turn up many local firms.

When you find your company you will need to ask a lot of questions and check into their references. You will want to know the full details of the underwriting process of the trust deed firm that you consider. You need to know their years in business, their default process, the investment minimums, the loan to value guidelines and the regulatory practices that exist in their state of operation. There are public records available that you can check to see if the company has any outstanding complaints. Check their references with their present investors. If all this is not available then move to another firm or if you have decided that you will not use a firm but become a hard money lender on your own then you will need to set a team of professionals to put together any potential deals.

What Is a Hard Money Lender?

A hard money lender is usually a private individual who provides a loan to the borrower based on the value of the borrower’s real property. The hard money loan is not dependent on the credit rating or score of the borrower but on a certain percentage of the quick sale value of the collateral. Quick sale value means the amount that the property could be sold by the lender during a time span of one to four months in the event of a default. The common loan-to-value ratio allowed by the lender is from 60 to 70 percent of the quick sale value. Here, it should be noted that if the property will undergo certain changes such as repair, the hard money lender would base the loan on the value of the property after it has been repaired.

The requirements for the hard money financing will vary to a large extent because these will depend on how the hard money lender views the risk presented by the borrower. It will also depend on the attitude of the private investor and the relationship that the borrower has already established. In some cases, the lender may simply inspect the property but in other cases he or she may require the borrower to submit copies of tax returns.

Because private investors or individuals are usually the lenders of this kind of loan, the interest rates and fees that are charged are usually much bigger than those charged by banks and other conventional lenders. So, what are the benefits of a hard money loan? The two most important advantages of this type of loan is that a credit check is not usually conducted because the loan is secured by the collateral and the money is made available to the borrower in much less time than a bank loan.

Meanwhile, because of the high interest rates and fees charged by a hard money lender, they may not be allowed to operate in certain states that have strict usury laws. Nevertheless, the regulation of this particular industry varies widely from state to state. Also, some lenders may be companies that serve a specific regional market or the whole nation. Some are even represented by brokers who usually take a certain percentage of the loan for their services in preparing the documents that are required. Other fees may be added to the interests, such as application fees and prepayment penalties.