Partnering with a hard money lender

5 Replies

Greetings all,

I was approached few days ago by a hard money lender for an opportunity to partner on a deal. He is lending money to a buyer (real estate agent) and wants me to put up half of the funds. I have never done this before! Am I scared? Maybe...but who cares right. We went to see the property, maybe in a B- neighborhood, schools are 4s and 5s, and the buyer has it under contract for 33K (purchasing from Freddie Mac). My side of the deal is to put up 13K and get a return of 11% (monthly payout). "11%??" I said. Who wouldn't take 11% return and not change a single toilet. That would be me. 

I have decided to pass on the deal since my goal for 2016 is to buy a rental property. I currently have two rentals in the Atlanta Metro area (which neither of them were purchased as a deal) and would like to start adding to my portfolio. The 13K I would be tying for at least 2 years would significantly cut into my funds for the rental property. At the end of the day I feel like I am skipping a whole lot of experience by going into the hard money side of things without building my foundation first. My magic number is 25 rentals before I can consider quitting my job and I don't see myself accomplishing that by becoming a hard money lender without being in the trenches first. 

Please let me know your thoughts, I'm sure many of you have been on both investing sides.

Cheers,

Damir 

@Damir Kamber , how well do you know this HM Lender?

First, most HM lenders do now finance such small loans.

Secondly, most hard money lenders have a pool of money and soliciting for $13K seems fishy unless you know them and have been trying to get involved.

I think you're doing the right thing.   Real estate lending can be lucrative, but you get neither the tax advantages nor the appreciation of owning real estate directly.    I guess that's the downside offsetting the relatively lower hassle and risk.

@Percy N. I know him enough where he can either make me lots of money or turn out to be a lying prick. It's REI, anything goes at times. We take the risk and hope to do our calculations accordingly. With that being said, this would literally be my first investment. I'm just not ready at this time to tie up a sum of money (significant in my case) if I know I can place it elsewhere for a better return and have liquidity as needed. If this was in 5-10 years, I would be all over this opportunity.

@Chris Soignier I think I am making the right decision but only time will tell. 

Either way, I see all this as practice. I learn from each experience and that can not be bought. Soon I will get to play the game. 

How are your markets these days gents? 

@Damir Kamber HML or lending in general unless its very short term IE flip loans of 6 months or less... 13k is not going to really get you anywhere your better off trying to buy some low end deals and make 5 to 10k flipping them to those who want to own rentals. build up a few hundred grand in cash then start your plan of either lending short term or buy and hold. or a combination of both.

Many ask me about HML as I have been doing it for a number of years.. and a good living at hard money lending is when you have 5million to lend.. that brings you in 500 to 600k in revenue 100k in over head etc... much less than 5 million is really just an investment hobby.

If your goal is to be a lender figure out how to get to that number then its a great business at least I like it.

@Jay Hinrichs thanks for the advice. HML is something I would love to get involved with into the future. Right now, I'm looking for a deal which then will be assessed as either a buy and hold or a flip.

Do you invest mostly locally? 

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