Have you ever borrowed money from a bank and been denied? Have you ever needed to fix your home and have received a loan approval that cost you more than the loan? If so, hard money lending is for you. This type of private lender is known for providing short-term lending to anyone on any project. Hard money loans are backed with real property, which means they can be used on any project, such as residential or commercial properties. Here in this post, we will discuss how hard money lending works.
So read on to learn;
- Finding A Borrower
- Size Up The Deal
- Assess The Borrower
- Negotiate The Terms
- Close The Deal
Finding A Borrower
Local Real Estate Investors rely on hard money lenders to source loans that banks won’t. However, finding a hard money lender is difficult because very few of them are not found in the Yellow Pages! Here is a directory of local clubs if you don’t know of any in your area. Some clubs even have Hard Money Lenders who attend meetings to tell about their programs and see if you are a good fit for one of their loans.
Size Up The Deal
Once you’ve found a local investor who needs a hard money loan, it’s time to size up the deal to see if it makes sense for you to invest.
The first thing you want to do is look at the property’s after-repair value. If the property is worth $250,000 after repairs are finished, and the investor has put down $50,000, your maximum loan amount would be $200,000.
Next, figure out what kind of profit the investor expects to make off of this deal. They may say they expect to make $30,000 from flipping it or renting it out long-term. Their profit must be enough for both you and them so that their investment doesn’t turn into a risk for you.
Finally, please look at your options for selling this property once the investor has finished with it. If you don’t have any strong leads on investors or renters who need money now, this deal might not be worth investing in.
Assess The Borrower
As an investor, you want to do your homework on your potential borrowers. Pull their credit reports and look for items of concern (i.e., bankruptcy or foreclosures). Also, check in with your lending contacts, who probably have had personal interactions with them (like attending the same investor club meetings), and can help you assess whether they are a borrower you would want to finance.
Negotiate The Terms
Hard money loans are short-term loans used to accomplish a large business or real estate transaction. The borrower is looking for a quick and easy way to buy something they can’t qualify for with a traditional bank loan. When they approach you, they look for a loan on their terms. You may want to provide financing, but it comes with certain risks that the borrower is not willing to accept, and you will have to negotiate, so both of you end up happy and with a deal that makes sense.
Close The Deal
You must have a highly experienced person representing your interest when the deal is closed. Before going through the closing process, contact a lawyer with prior experience in closings of properties like yours. Then hire them to do what they do best: get the deal closed! When discussing your financing option, including legal fees in your budget.