I have been a Lender and Broker of Hard Money, also known as Private Money, for many years. Over 8,000 brokers have used our services over the years. This article will focus on being a successful Broker of Hard Money. The rules apply for most of the states. If you are looking for a great place to find Hard Money Lenders or Private Money Lenders in any state "click here". There are also advertisers on this page what would like to fund your loans. Note: I am not a real estate attorney and that you should always seek the advice from qualified persons in your state. With that said here are the secrets of the trade. They are not complicated but most Brokers do not follow them. That is why they fail.
Do Hard Money Loans work? Most definitely YES!
Do Hard Money Loans work? Most definitely YES!
Most Important Tip! The one who has the money controls everything. That means not you, the other Broker or your client control the deal. The one who has the money controls the amount to be lent, the loan to value, the commissions to be paid to you and everything else. There are so many good deals out there the lender can easily just move to another loan.
Tip: You must be licensed in the state you are trying to broker in. To many times over the years a deal dies because the broker said that they were licensed to do business and were not. Think you can get around it just one time. Well just remember that if your client needs Hard Money there is probably other problems you do not know about. Many of these loans end up in the hands of attorneys and you will be sued! Not being licensed just means you will loose. Ask your Real Estate Attorney.
Tip: Make sure that the funding source actually has the money. More often than not you think you are dealing with a direct lender and they are only another broker. At times they can be both so ask every time if the loan you are submitting will be funded in-house. And if it won't be request that it NOT be brokered to anyone else.
Tip: Broker Chains usually never work. Nothing worse that finding a funding source and having the fourth broker (who actually has the client contact) demand to much money to make the deal work. Remember the more commissions paid weakens the borrowers position and this always makes the lender nervous. If you do end up in a broker chain make sure that all the Brokers have agreed up front what each will be paid. An even better way is to split the commission as a percent of total commissions. This must be in writing!
Tip: Stay away from Owner Occupied properties. The commissions are capped in most states and more importantly they are more litigious. I call this the "never be on the 6:00 o'clock news". Nothing is worse than helping with a Hard Money loan that goes south and the poor old person is telling the reporter how they never could have serviced the loan in the first place. And that "YOU" lied to get them the loan. Think this doesn't happen...Just watch the news.
Tip: Non-Owner Occupied properties and Commercial properties are the best. These borrowers are considered "sophisticated investors" by the courts. This means that when the loan goes into default you are not kicking someone out of their house the lived in for the past 30 years. Also most property investors are not emotionally attached and if they loose the property, it was a business decision.
Tip: LTV or Loan To Value. LTVs range greatly and change daily according to the kind of property and amount of money the lender has to lend at any one given time. Bottom line is the lower the LTV the happier the lender. As a general rule Single Family Residences are lower than Commercial (more tenants = more stability). Keep your LTVs under 60%!
Tip: Loan amounts are crucial! One of the biggest mistakes I see is the Broker trying to make the 1 million to 50 million dollar deal. Yes they do happen but very very infrequently. At a Hard Money meeting I attended one of the old-timers said to me. I quote "if they cant get the Bank to lend on the project, and it looks like a great loan, you just haven't found the problem yet". Here are the facts: 90% of all Hard Money or Private loans are under $400,000. The reason is simple. Most Hard Money lenders have under $7,000,000 to lend and the smaller the loans the less risk per loan. The other reason is if one of their investors looses money their whole business is at risk.
I hope you liked this article. To find hard money lenders go to http://www.hardmoneyhunt.com
I hope you liked this article. To find hard money lenders go to http://www.hardmoneyhunt.com
