Money Lending Business
Are you looking to become a hard money lender?
It is a hard asset or real estate based business. A hard money lender secures the loan against the real estate property of a borrower. Hard money loans are generally offered to real estate investors such as builders, landlords, and those who fix and flip.
Given the boom in the U.S. real estate market, the hard money lending business has become one of the smartest and safest ways to promote wealth building. With the proper knowledge and networks, investing in real estate through hard money lending can be highly rewarding.
A hard money lender can enjoy the same level of security and profit prospective as wholesaling and rehabbing, but without buying new properties.
Here is how you can start your career as a hard money lender.
1. Are You an Ideal Candidate for This Profession?
Hard money lending can be a great venture for individuals who:
- Own surplus money or idle cash lying in a savings account getting little to no return.
- Having sizable retirement savings account such as an IRA (individual retirement account) or 401k that they want to grow.
- Are looking to earn passive income or want to involve in the real estate market without being an active part of it.
2. Stay Local
You can make the most of your hard money lending venture when you work locally.
There are lucrative real estate deals all over the state or nation; however, there are also deals right in your neighborhood.
Starting as local hard money lenders can help you meet face to face with investors. As an added bonus, you will likely be more available for meetings and future investment requirements. Don’t undervalue the possibilities in your local market; you never know what kind of deals might come your way. You can take your lending business to new heights.
You will get success in finding borrowers because you are a local expert and you are familiar with your local marketplace.
3. Learn to Identify Your Borrowers
The concept of hard money lending is simple and straightforward: real estate investing doesn’t exist without money.
Capital, like in every other industry, is the lifeline of an investor. Real estate investors need funding for their deals.
Not all investors can fund a deal with their personal finances. Besides, even if the money is readily available, investors will look for financial aid from a private lender. Regardless of their financial condition, they are likely to opt for private money aid. Instead of having to fork out money from their savings, investors are provided with more options to scale their business with the use of hard money.
Above all, it is easy to obtain hard money. The time of approval is crucial for any investor, and it can make the difference between closing the deal and losing it.
A timely financial aid helps them close on a real estate deal.
With hard money lending, you will encounter several types of borrowers. While each has particular needs, they are all aiming for quick funding.
All you need to identify your borrowers which can be from the following projects:
Fix and Flip:
Such investors will generally purchase a residential property and renovate it to resell it. Hard money lending is attractive for borrowers in such jobs because traditional banks are less likely to fund their projects. Moreover, quick loan approval leads to a profitable fix and flip.
Rehab and Rent:
These borrowers generally buy a residential property and remodel it for renting. Hard money lending is ideal for them for the same reasons as borrowers in the fix and flip category.
Builders and Developers:
The borrowers in this category will buy vacant land to develop it into a residential or commercial project. They look for private money mainly based on quick approval of the funds. Besides, not all banks are likely to fund speculative development.
This category of investors might look to use hard money as a bridge loan for commercial property when a bank is less likely to fund an un-stabilized asset.
4. Assess the Ability of a Borrower to Pay Back
Frankly speaking, your profit relies on the investor’s ability to pay back the loan. There is no point in this lending profession if you struggle with the money back from the borrowers. Therefore, make sure to review their past track record and ability to repay the loan. Besides, assess the value of the collateral.
5. Look for Your Sweet Spot
If the funding capacity of the majority of your borrows starts from, for example, $50,000 to $3,000,00, then consider this range as your “genre”.
A borrower who requires a $60 k loan might be rejected by a lender who typically funds million dollar loans.
Create your book of business by starting on a small level, building volume, and then working your way up to heavy loans. You can earn big by giving 50k loans to 5 borrowers than doing one big $500,000 loan deal. Smaller loans are quicker and easier to close.
6. Maintain Total Transparency
Avoid exaggerating your portfolio or background with superficial details to attract prospective borrowers or investors.
No matter what phase you are standing at in your lending profession, let your work speak for itself.
Don’t misrepresent your services. Always strive for total transparency and stick to your mission and values.
One of the easiest ways to ensure transparency is by providing real names, addresses, pictures, and email addresses of your business. Also, the pictures of the real deal can be used instead of those fake stock images on the websites
7. Educate Yourself
To become a successful hard money lender, it is essential to learn from experts. Luckily, the Internet has many coaching videos and tips on hard money lending.
However, it is better if attend industry conferences and approach the experts. Staying updated will help you stay on top of market trends and factors affecting the real estate world.