I Want to be a Hard Money Lender When I Grow Up
I got the strobe light at Radio Shack the summer of 8th grade. The mirror ball was a Christmas present. I bought more than 200 singles from Music City Records that year – artists like The Breakfast Club, The Jets and Cameo. I would spin those 45 RPM one-hit-wonders with an old Pioneer turntable. My 10 x 10 bedroom was transformed into a disco club on a nightly basis, much to my parent’s chagrin.
Want more articles like this?
Create an account today to get BiggerPocket's best blog articles delivered to your inboxSign up for free
That’s right folks. I wanted to be a disc jockey when I grew up.
The preparation was intense. My Mom signed me up for radio broadcasting classes at the local community college as a freshman in high school. I got my FCC license at 15. I worked nights as an assistant to a party DJ in town. I’d help him set up lights, amps and speakers. We played high school dances, weddings and private parties.
My favorite gig was the local Marine base. The enlisted men guzzled beer while we played it loud. The top request was Hank Williams Junior’s Family Tradition. The Marine’s added their own lyrics to the song and shouted them out. That is, until the commanding officer grabbed the microphone and ordered the drunk GIs to stumble back to the barracks.
Yes, it was fun for a while. But it didn’t take me long to discover that being a DJ wasn’t as glamorous as I thought. Working weekends and nights seriously cramped my social life. And the pay sucked. The dream died not long after I graduated from high school.
Back in the glory days of 2004-2006 I owned 65 houses, most of them lease/options. I also made money wholesaling, fixing and flipping and buying and holding. Then the crash came. Like most investors I fell hard. Fortunately, I was able to put the pieces back together again in 2009. My firm has flipped about 45 houses since then.
Through all of these ups and downs I’ve decided that I want to be a hard money lender when I grow up.
Now don't get me wrong. I love our hard money lender, RLS Capital, Inc. Just last week they funded a deal we bought at the courthouse steps. I sent the information on the property to them at 3:30p, right after we won the bid. One hour later my rep called to say they would fund the loan. I signed loan docs at their office the following morning. They took the checks to the trustee's office for me and recorded the deed of trust.
Sure, they charge a $900 loan origination fee and 18% interest. A down payment of 25-30% is required. And the loan is based on the acquisition price, not the retail value. This may seem expensive, but I just consider it a cost of doing business.
Last year, RLS Capital, Inc. did 30 loans for us. That's $27,000 in loan origination fees, which increases their return on investment to nearly 20%. Best of all, they get a secure position (1st) in the event we default. The business model is sound and the return is great. So why don’t I grow up and do this now?
The reason is simple â it takes gobs and gobs of cash to be a hard money lender. The first time a client calls for a loan and you don't have any money to lend will be the last time the client calls. I don't have the capital it takes to get into the game, yet.
Until that day comes I’ll keep using hard money to fix and flip. Maybe I’ll even dust off the mirror ball and book a gig for some extra cash. I hear 80’s music is making a comeback.