I wrote about private lending, tonight I decided to write about hard money because I think there are some misconceptions about it and having an honest and resourceful hard money lender is key for our business.
First, lets talk about lingo, a hard money lender lends a percentage of the purchase price of the property usually charging 2 to 5 points and 10 to 15% interest. A rehab lender usually lends a percentage of the purchase, usually 75 to 80%, and a percentage of the rehab, usually 80 to 100%, charging points and interest if certain criteria is met, usually lending amount is less than 75 or 80% of ARV.
Now, all money is green but not all money is the same, in my opinion the most important attributes of a hard money lender are not cost but ability to come though and speed.
First of all, if a hard money lender asks you for a pre-paid amount, a club fee or whatever they want to call it, run away, they are a scam.
A lot of hard money lenders shop your deal with their investors after you send it to them, meaning they need to find the money, which causes delays in closing escrow and it’s not a sure thing it will actually happen. Large lenders like Grand Coast Capital have the money in a fund, readily available to lend it. This is a reason most hard money lenders ask you to request 15 to 21 days escrow, because they need this long to find you the money.
I write my offers as cash with no loan contingency, yet on the loan section of the offer, to cover myself and give a heads-up to the listing agent, escrow, title and seller I type “buyer reserves the right to obtain a hard money loan, all other conditions remain the same” I write my offers with a 5 or 7 day close, because I can, my lender is so well funded and fast that I can close within a week even if I get a loan. Seller does not care if I get a hard money loan, I am stating I will not change any other condition.
Questions to ask a hard money lender you interview are:
1). Do you have the money available or do you look for it once I present you a deal?
2). What are your fees (points and interest, and any other fees?) some lenders quote you a low fee (1 point, 10%) but then charge you processing and appraisal fees, etc.
3). What documents do you need from me? Will you run my credit, if so why? Is FICO a consideration factor? Do you do a background check? What could stop me from getting a loan from you?
4). How quickly can you close?
5). How big is your investor and rehabber’s data base? (a good hard money lender can be your BEST wholesaler contact list, if he/she is good he/she must have a data base with hundreds of serious rehabbers, can’t work on a deal, ask them to send it to their data base! They will love it because most likely they will fund the loan. Like wise, ask them to add yo to their buyers’ list. I get deals from my hard money lenders every week.
Look for good ones, interview them, stick to reputable, resourceful ones like GCC. Borrow and leverage like there is not tomorrow, I have borrowed over $35M in about 5 years, it’s scary at the beginning but you will get used to it, Use debt and grow!