7 Steps to Find Hard Money Lenders - Posted by Jim Kennedy - Houston, TX
Posted by Jim Kennedy - Houston, TX on April 20, 2002 at 12:27:42:
Here’s my list of “Seven Steps to Find Hard Money Lenders”:
Step 1. Since most hard money lenders tend to be either local or regional in scope, on this news group, post what city and state you are in and perhaps someone from that area can refer you to a hard money lender. (From your post we know that you’re in New Zealand. Hopefully, someone from there will chime in with a referral.)
Step 2. One hard money lender, Bob Beckman of Rehab Funding, advertises on this web site. Look for his banner ad at the top of this page. If at first you don’t see it, simply click on your web browser’s reload or refresh button until the banner ad says “Hard Money Loans” or “Rehab Funding”. Or go directly to his web site at http://www.rehabfunding.com/. (Don’t know if Mr. Beckman would fund a loan in New Zealand, but it’s worth a try. The worst that can happen is that he can say “no”.)
Step 3. Many hard money lenders have web sites that explain what they have to offer, including their rates, terms and conditions. Therefore, do a search of the Internet for hard money lender web sites.
Step 4. Find several local rehabbers by calling their “I Buy Houses” ads in your local daily newspaper as well as the local Pennysaver, Thrifty Nickel, Greensheet, etc. In my area, several rehabbers run ads in the yellow pages. Ask the rehabber if they can refer you to a hard money lender who makes equity based loans in your area.
Step 5. Attend the next meeting of your local real estate investment club. Ask some of the experienced investors for a referral to a hard money lender. If the club has a membership roster (as mine does), start at the top of the list and contact each member and ask who they use for hard money loans.
Step 6. Open the yellow pages to “Real Estate Loans” or “Real Estate Mortgages” and start at the top of the list. Call each lender and ask if they make hard money loans. If they don’t, ask if they can refer you to someone who does. Be careful with this last one. Many mortgage brokers only deal in “traditional” types of loans and will look at you with a puzzled look, if you ask about “hard money”. ?Hard money lenders? are also referred to as ?equity based lenders? or “asset based lenders” by some people. Just make sure that the person you’re asking understands that you’re looking for a lender who looks primarily to the asset and isn’t very concerned with your credit when deciding whether or not to make the loan
Step 7. Contact your title company and ask if they know anyone who makes equity based loans. If they don’t, open the yellow pages to “Title Companies” and start at the top of the list. Call each title company and ask if they know of any hard money lenders in your area. If real estate settlement closings are not handled by title companies in your area, contact whoever does closings (typically attorneys) and ask for referrals to hard money lenders.
If you do steps 1 through 7 above, I’m confident you will find a hard money lender.
Also, if you haven’t already done so, go to the ‘how to’ section of this web site and read Ed Wachsman’s explanation of hard money in his article entitled “A Glossary Of Common Terms Used In Loans And Lending”. You can find it at http://www.creonline.com/articl68.htm
As Mike Daly mentioned, you might also explore the possibility of “private” funding. It may merely be semantics, but I think of “private money” and “hard money” as two closely related but different sources of funding. I consider the main distinction between hard money and private money is that hard money comes from sources routinely accustomed to funding transactions while private money comes from sources that don’t ordinarily fund deals and may never have funded a deal before. These are generally private individuals who you cultivate as a source of funds, e.g. your doctor, dentist, accountant, neighbor, relative, former co-worker, or basically anyone you know who may have some money to invest.
In the case of hard money, as Brent pointed out, the lender dictates the terms of the loan. On the other hand, with private money, the terms of the loan are very negotiable between the private money investor and the real estate investor.
Depending on the lender, hard money will want an LTV of 65% or lower, interest in the teens (12% - 18%), with 3-10 points and possibly a pre-payment penalty. Some hard money lenders will base the LTV on the ?after repaired? value as opposed to the ?as is? value. This allows the investor to pay for the repairs as well as the acquisition of the property. In those cases, the repair funds are generally held in escrow and released on draws after each stage of the rehab is completed.
A hard money lender is also known as an asset-based lender or an equity-based lender. In most cases, these folks are either full time hard money lenders or regularly make hard money loans as a supplemental source of business.
Regarding private money, when I approach a private individual to see if there’s any interest in funding a deal with me, I try to find out what will make the investor happy. I’ll ask the investor what kind of a return he/she is currently getting on their money. I then ask what kind of return they’d be looking for on our deals. I’ve had people quote me rates as low as 8% and as high as 25%. I then structure the deal so that my investor receives more than he asked for. If he says he’d be happy with 10%, I give him 11% or 12%. If he says he’d be happy with 15%, I give him 16% or 17%. Rarely do any of my private money investors ask for points, but sometimes I’ll offer one or two points just to sweeten the return for my investor. As long as the deal will support the cost of the funds, I’m not too worried about the interest rate. The availability of the money is generally more important to me than the cost. Naturally, if the investor asks for more than the deal can afford to pay, we either negotiate more reasonable terms or I take a pass on that particular investor for that particular deal.
By the way, hard money lenders generally get the funds that they loan out as “hard money” from private investors.
Best of Success!!