Hardmoney Upfront Fees
Monday, February 28
Man, have I ignored this blog for a while or what?! It's possible nobody even noticed because they don't check in, but in case you did notice, I'm sorry!!
There was a thread a few days back about hard money lending and their upfront fees. It reminded me of a time when I was desperate for funding, surrounded by good deals with not enough capital to invest. I had about 10-12k in my bank account at the time, but was bartending, so I didn't have the best tax returns, although I was making decent money. I was 22 years old, had little experience, serious determination, and a 4 unit under contract for 54,500. The emails below are copy and pasted from my Gmail. This was a conversation I had with a broker who said he representend hard money lenders....
Bryan,
Sorry it took so long to get this to you. I lost your email address, then obviously I found it.
In response to our conversation, here are the items you will need to get to me for your purchase in NC..........
1. 1003 Application filled out and signed (attached)
2. Last two years tax returns and w-2 forms
3. Last two paystubs (if any)
4. Last two bank Statements
5. A copy of a recent Credit Report with Scores
6. A subject to appraisal (To be ordered later)
7. The last Statement for any investments you have (Stocks, mutual funds, retirement plan)
Please get me those items. As far as the app fee, I am also attaching an authorization form for you to fill out and send back to me. As soon as the card clears, I will submit your docs to the lender and get you the best deal,
The quicker you get this to me, the sooner I can get this done. If you have any questions, don't hesitate to call.
Dave
dave,
thanks for your help so far ...a few quick questions...i always thought income wasn't so crucial as a deciding factor for hard money loans..i could put my actual income, but i would not be able to prove it with tax returns..what do you suggest i do? also, i'm curious about the 299 upfront fee..i don't mind paying it as long as i do get the funding i need..what happens if after the investors see my low income if they do not want to fund my deal?? if i don't receive the funding i need, do i get my 299 dollars back?? ---bryan
Bryan,
Based upon the income you told me about on your bank statements, this is a doable deal. They are more concerend about reserves. Plus the fact you have the pre-approval from your bank as an exit strategy gives them peace of mind that you can get out of this deal.
If you have any others questions, feel free to ask. Thanks.
Dave
Dave,
I don't mind paying the 299 as long as I get the money, but that's a good chunk of money to give away if for some reason I do not get my funding. What happens to the 299 if I dont get the funding I need? Is it returned to me?? Thanks--Bryan
Bryan,
As you requested, let me explain the $299 refundable app fee. This is a fee my lenders require to make sure borrowers are for real and serious. The fee is refundable, as the authorization states, if I do not perform my duties as consultant or the loan is turned down for disclosable reasons. Such as your income or reserves.
I hope this helps you out. Please let me know what you want to do. Thanks.
Dave
RIGHT AFTER SENDING THIS EMAIL, DAVE CALLED ME TO FURTHER EXPLAIN THAT THE 299 WAS JUST TO SHOW THAT I'M SERIOUS. HE WENT ON TO SAY THAT IF I WASN'T WILLING TO PUT UP THE 299, THEN I OBVIOUSLY WASN'T A SERIOUS INVESTOR AND THEREFORE, COULDN'T POSSIBLY UNDERSTAND THE INTRICACIES OF PRIVATE LENDING.
2 DAYS WENT BY AS I THOUGHT, "DO I WANT TO LOSE MY 299 BUCKS?"....
Bryan,
What have you decided to do?
Dave
I talked to other hard money lenders today. You were the only one wanting to charge a consulting fee or any sort of application fee. Please understand, I do not think you are trying to take advantage of me for a measly 300 bucks. On the other hand, I am indeed serious about my business, and that is why I have to question every single expense. I'll be more than happy to pay you if you can get me my funds. But I'm not looking to pay someone before they deliver. If we can get creative and you will allow me to pay the money at the closing table, I am in the deal, and ready to do business, but I have to make sure my money is being used properly. Are you willing to work something out?? Thanks-Bryan
Bryan,
I suggest you go with others. I will back out of this deal. Thanks.
Dave
No problem, thanks for your time. --Bryan
Bryan,
When you find others can't do your deal, remember I could have. You are the type of people my investors want me to stay away from because they feel if you can't afford the $299, you can't afford the loan. That is why they stick to that rule. If I could, I would love to help you. You seegim like a good guy. But I am always reminded by my guys this simple truth. When you go to the grocery store, do you tell the cashier you are taking the groceries home and then you will be back after you eat them and pay? That is what they remind me about whenever I want to help someone like you. Bryan you will spin your wheels and end up with nothing. Good luck.
Dave
I had several great responses to Dave's last email, but in the end, I decided it wasn't worth my time. Now, was he trying to scam me? Maybe yes, and maybe no. In the end however, I used this as motivation to go on BiggerPockets and find a hard money lender to get a deal done. I private messaged anyone who mentioned there were brokering hard money loans or lending hard money. Finally, I came across a lender who was honest and upfront. So far, he has lent me hard money on 4 deals. Not only that, but he has also been a great reference for me to two other private lenders. If you ever feel something is sketchy in your guy, stay away!! I'd love to email this guy back, and tell him how I've done since we last talked, but it's not worth it. It just makes me smile every time I read it because of how far I've come.
Now on to the meat of this blog post---if you're out there looking for money, a deal, buyers, sellers, etc. Whatever it is, don't give up if it's your passion and you truly want to do it!! I was ready to give up, but I perservered, and the rest is history.
Joshua Dorkin Reply
about 2 years ago
AWESOME post, Bryan! I'm so happy that you decided to share your experience for all of us to learn from. I'm glad you stuck by your guns on this and didn't give in and pay the fee. I'm also glad that you ended up on BP, as you've added a great amount of value here to the community, and with articles like this, you're only raising the game. Thanks for sharing your experiences with all of us!
Kevin Kaczmarek Reply
about 2 years ago
Bryan, this was an awesome post. I thought it was interesting in his first response that he never addressed the most important issue. Most people would stop there and just give in to the $300 fee, but because you didn't you found this path and it led to success. Congrats!
Sharad M. Reply
about 2 years ago
Bryan, great post. Congrats on your continuing success.
Bryan A. Reply
about 2 years ago
thanks for the comments guys! it's nice to know people are reading lol.....i've used hard money for 7 deals to date, and i've never paid an upfront fee so far...BP has been awsome for me, and i encourage everyone to jump in and get their deals going!
Bryan A. Reply
about 2 years ago
quick BP success story: as i said above, i got this deal funded through a hardmoney lender from BP. as soon as i refinanced that property with my bank I had a 4 unit cashflowing property, plus the hardmoney lender said to keep the money invested in charlotte! i then used that money to flip a house and put some nice change in my pocket. after that first deal's success, it snowballs into another, and another...!
Loc R. Reply
about 2 years ago
Great job Bryan.
Charles Perkins Reply
about 2 years ago
Appreciate your willingness to share this as well. I have never done a hard money loan, but your experience will help if I ever consider this.
You have come a long way it seems. Glad to hear that you have a good start in your investing career. Your a great example to other young investors.
Bryan Hancock Reply
about 2 years ago
Great post! I'm glad you have found what you were looking for on BP too Bryan!
Bryan A. Reply
about 2 years ago
thanks guys..it's experienced veterans like yourselves that have helped this "youngin" out so much...to the other "youngins" out there who are trying to build a reputation on BP--post and post often...people will reach out to you, and soon you'll be on the phone with BP members, meeting them for lunch, etc. It's the easiest way to start networking if you're timid about going to a REIA or something. :)
James Vermillion Reply
about 2 years ago
Awesome post Bryan. I love seeing my fellow "youngins" out there with good instincts, passion, and mind for investing. Maybe some day we can work together on a deal!
Bryan A. Reply
about 2 years ago
hey james...thanks for the comments..we need more young entrepeneurs like yourself on BP! keep on keepin on!
Jon Klaus Reply
about 2 years ago
I agree with the rest that this was a great post and that you have come miles and miles in a short time. If you were a stock, I'd buy 1000 shares.
Bryan A. Reply
about 2 years ago
jon, that wins the award for best comment on a blog, hands down!!! josh, can we make a special award for "comment of the year"?? seriously, thanks jon, and everyone else...it means a lot!
Charles Perkins Reply
about 2 years ago
I would second that award.
George P. Reply
about 2 years ago
very interesting - thanks for sharing
Bryan A. Reply
about 2 years ago
hey george, glad you liked it...hopefully you can learn from my "almost mistake" :)
Joel Owens Reply
about 2 years ago
Dave sounds like a locater and not a direct hard money lender.
They want to get the fee upfront so they get paid for the time invested.
There are tons of direct hard money and private money lenders and locaters are not needed.
Tracey Williams Reply
about 2 years ago
Bryan,
Thanks for sharing your story, you have really encourage me tonight. I look forward to sharing my story one day
Bryan A. Reply
about 2 years ago
tracey, i see the tables have turned!! i believe it was your post that actually inspired me to write this blog entry...so thanks for reminding me about my converation with Dave back in the day, and thanks for letting me know you enjoyed this as well..i'm glad you got something out of it!
George Moehlenhoff Reply
about 2 years ago
That was so much fun to read. Thanks Bryan!
Mathew Aron Reply
about 2 years ago
Thanks for the post. I'm also a young investor (24), but I don't post very much on the forums. Come to think of it, I don't think I've introduced myself. I'll have to do that and be a more active member.
As for the email exchange, I can't believe he wrote you that last email. How condescending and plain mean that was; not to mention burning a bridge. How hard was it to not reply to that?
Bryan A. Reply
about 2 years ago
hey george, glad you enjoyed it!
mathew, i definitely encourage you to be more active on BP..i have a few deals going on with BP members, and another couple potential ones that we're trying to work out still...bottom line is BP is great for learning AND networking/dealmaking!
as far as that last email, i just figured it was no biggie...a broker that is that unprofessional is not someone i would do business with...i'm sure he just wanted the 300 bucks and that's what he was pissed about
Reply
about 2 years ago
Hi Brian,
I thought it was great how you sussed him out and how you dealt with the situation, especially as you were a beginner. As I have been brokering hard money and bridging loans for many years, I know from experience that the ones who charge upfront fees- are not the real deal, namely, they are scammers. Although your guy had a modest fee, he surely was not going get you the deal. The big sharks charge something like 3k or even 1% of the loan amount and never deliver. I will not mention names, but I know at least one of them has been under FBI investigation.
Bryan A. Reply
about 2 years ago
thanks for the comments rachel..300 may seem like a little, but back then when i was starting, that was a big chuck of change for me to lose....come to think of it, even today, i'd still be pissed losing 300 bucks... i guess cheapos will always be cheapos :)
Mike Gardner Reply
about 2 years ago
Based on his writings I may know him, I think he is a terrorist and needs to money to wage Jihad
Craig Grella Reply
almost 2 years ago
I work primarily in the hard money world, and get asked this question often, and I certainly agree that someone telling you that you need to put up money to show you are serious is a ridiculous explanation of an upfront fee. I would run, not walk, away from that kind of explanation.
However, there are two situation where I have been involved with deals with upfront fees:
I always make it clear from the start if that might be the case though, not in the tenth email.
1: I have contacts a few small private lending groups which manage money for several other investors who are basically retired guys lending out of their investment portfolios. The management company underwrites loans and when something fits their parameters they reach out to the money guys who approve the investment and then cut checks in anticipation of funding the loan. The file then goes through third party due diligence like title and appraisal and the attorneys look over the docs. These are not banks, so for the most part the attorneys handle all the paperwork. That third party diligence can take 2 weeks or more depending on property type. All the while the investors' money has been tied up waiting for funding. Sometimes these deals fall out of underwriting because something comes back like bad title, or an appraisal coming in low. The deal falls apart and the investor's money is sent back. In those situations, the management company has to offer the investor a return for the time their money is out of pocket. This is usually a few hundred to a few thousand dollars depending on the size of the loan. They'll sometimes give a few dollars to the attorney depending on how much work was done too.
Again, I make it clear what's happening up front. The borrower always has the option to choose another lender. Also, I wouldn't do that with someone I don't have a working relationship with. It would be very hard for me to tell a client to spend $1,000 on a fee with a lender I haven't already closed a loan with.
When the deals do close, those fees are credited against closing costs, so they are not a profit center for the lender/investor.
2. On larger deals, some clients come to me for help putting their package together before it goes out for financing. We've done this with hotels, a few SBA loans, and a few large residential developments. I charge them an hourly rate or a flat project fee to help them get all their docs in order, and to do feasibility studies if necessary. I've done that for several developers in the past and have a few templates I use and a few resources for the research angle. That tikes time and money on my part, and some of the borrowers don't use me to do the funding. In that regard its like a consulting fee. The ones who do use me to find financing for them too, i charge off that upfront fee against the percentage commission I get when the deal closes. That structure has worked for me and has added value for the developers.
I just wanted to send this reply because not all upfront fees are bad. You just need to be clear with what you are offering in return for that fee, and it has to add value to the deal.
Carlos F. Reply
over 1 year ago
Great post Bryan.
Todd Palmer Reply
over 1 year ago
byron i am in raleigh nc do you no any hard money lenders here
Reply
over 1 year ago
I am a new mortgage deed investor. Does anyone know of a private money lender in the Cleveland, Oh area who is actively looking for more money to fund real estate deals?
Bryan A. Reply
over 1 year ago
todd, best thing i can tell you is go to local REIA's and find out who is lending money locally...good luck :)
Davion Malwah Reply
over 1 year ago
Epic post Bryan.
Bryan A. Reply
over 1 year ago
thanks davion..glad you enjoyed it :)
Ryan Wright Reply
over 1 year ago
Great post. Very detailed
So I would love some feedback from all of you as well. I am a hard money lender, not a broker we lend our own money. We have a set loan to value we are able to loan for example up to 70%. To verify the real value of th eproerty we get an apprisal, desktop apprisal, and automated valuation. Each of these has a cost that has to be paid regarless if the loan closes or not. We do not fund based on. Credit, income or job ( As long as you don't have tax liens, judgements something that would attaché to property or in a bankruptcy)
I give you these details not to plug what we do but so that you can understand that if the values come in right then we can loan the money basically no matter who you are.
That bein said the only thing we need to Know to do a deal is the value of the property.
Because of that w charge $550 to get the apprisal, distoo apprisal and avm completed. We don't make any money on this obviously and in sow cases we loose money on it. Teproblem is that there is no way we can afford to pay for that for everyone that makes an application, we would go broke in one day.
So my questions is Brian, If you would of been told to pay $550, to cover the cost of the apprisal And you would get a copy of the apprisal that you paid for. And that you would get funding it is just a question of how much the apprisal came in at, what would you think of that? I hope you can see my perspective as the lender.
Anyone else have any feedback. I can lend to you it is just a question of how much, it is simply a percentage of the final determined apprisal value. So the loan won't be denied, you may not get what you want for th Sloan, but at least you will have an apprsisal to justify it and you will know the LTV before you payfo the appraisal.
Anyone else have comments or an ideas how we could do this better. I only ask because I can clearly see h concern of paying money up front.
Thanks in advance for your comments...
Rachel Binkley Reply
8 months ago
I found a web site that for $277 offers unlimited proof of funds letters. I am thinking this is not a bad deal. They are hard money lenders as well but with very high fees. I have found less expensive money. Is the $277 worth it? A pre-approval/proof of funds is the last thing we need to be able to start making offers.
Joe Gorda Reply
3 months ago
I have been searching for a lender for a property in FL I bought cash 115K put 65 K into fema improvements and seek 80K for final work. I have spoke to countless lenders and the feeling that some are just there to take your app fees and couldnt fund a real loan is amazing. It seems if they enough suckers to spit out a few hundred a week thats a nice payday for them. I stand by the premis if they want to loan $ they will do their due dilagence and roll it into a loan. If there is someone who maybe interested get back to me the arv according to a cma /bpo is 300K so a 80 k loan shouldnt be that hard for a credible lender. after all I have 175k into the project and its all out of pocket.