When working with hard money lenders, be sure you are able to quickly summarize your loan request. Don’t go into too much detail or explanation until the lender has decided to move forward in the process with your loan request.
One of the fastest ways to get your loan request ignored by a hard money lender is not being able to quickly summarize the loan scenario.
If a prospective borrower cannot simply summarize the loan request in only a few minutes, chances are I will not consider the deal. If a prospective borrower cannot simply summarize the loan request in only a few minutes, chances are I will not consider the deal.
Plenty of time to dedicated to loan requests in processing, but many loan requests will never get to the processing stage. Be clear, concise, and efficient.
If you have an Executive Summary it’s best to keep it to one page.
Again, more information will be requested and reviewed once your loan request has made it to the processing stage. The initial submission or inquiry is a quick snapshot to get a lender interested in learning more about your loan request.
I couldn't have said it better myself...
“Just the facts, ma’am” – Sgt. Joe Friday, from the television series Dragnet
Do you have hard money loan questions or tips?
So as a novice to hard money lending but an experienced investor I would really not know what I need to present when it comes to applying for a hard money loan. You make it sound like I have three minutes to state my case and once the buzzer goes off I'm off the stage and I'll get a yay or nay. Do you lend that much money and are that busy that there is no room to go over what you want for a deal summary with a borrower and have room for a little back and forth? How many deals do you look at in a day? I would think that considering you are charging in excess of 10% on your money you might spend some time with the borrower to make sure the deal is presented properly and you have everything you need from them and you are both on the same page. (And when I say you in this I don't necessarily mean you but rather all hard money lenders although you did refer to yourself in the first person so I'm guessing you have the attitude I'm picturing.
I think what he's saying is it's the same idea as submitting a resume for a job. Three minutes won't get you a deal, but it's about how long you have to get your foot in the door and interest him in spending more time studying your deal
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The majority of rehabbers we work with earn many tens to hundreds of percent returns on their money per deal, @Rob Beland . Sometimes infinite. Yet, there seems to be a prevailing attitude that somehow it's wrong for a lender to earn a fixed 10 or 20%. As a "novice to hard money lending" your judgment doesn't seem productive. In fact though, I agree with much of what you wrote.
A wise borrower has already spoken to their prospective lenders and has hopefully formed at least a fleeting relationship with them. They should know the lenders terms and lending criteria. The lender should have indicated whether they have the requisite experience, cash, credit, deal flow, hair color, whatever. No surprises. If the first time a lender ever meets you is when you present your first deal to them, then I don't care how much or little info you present, you will be met with skepticism. This is not the way to do it in my view.
Unless you are dealing with a hard money lender that uses conventional lending criteria, and unfortunately many now do, there should be little a lender needs if they are even remotely asset based. For example, we'll typically receive a text or email with the address, purchase price, ARV, and rehab estimate. That's it. Since we probably already know the borrower, even for a first time deal, we'll either schedule a meeting at the property with them or we'll spend a short while doing an evaluation showing them why we don't recommend they purchase the property. Thus, it often takes us longer to say "No" than to give an initial "Yes, looks good so far, let's meet."
Obviously, we are just slightly smaller then Ken, and our process appears night and day different to JJ's. Nor does it have anything to do with "charging in excess of 10%" on our money. It does illustrate how important it is to pick the type of relationship and lender you want to deal with (and perhaps leave the judgment at home).
@Account Closed I don't do the volume you do .. but i did 2k plus from 02 to the melt down in 08.. And all I really want in the beginning is the very basics I don't want a flowery description etc. just PP rehab... ARV.. do you have any dough.. if you have no dough its a no go.. that stops most of them... LOL
I think it just comes down to time is money.
The HML's want the fattest loans possible with the best borrowers. The best borrowers of course want the best terms putting the least down. It's a dance of HML looking for their prime target and the borrowers searching for their prime lender. Just because a borrower has tons of money does not mean they want to drop 35 to 40% down on something.
I find national HML lenders are not the best rates. They price in points and higher rate for unknown risks state to state. A local HML lender can give much better rates as they know the areas block by block. Just like calling on bank loans with HML's you have to really dig around to find a good deal for yourself.
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I did one HML about a week ago and am doing another next week. The two different borrowers contacted me. Here are the details I asked for:
1. property address. I did quick research on value
2. loan amount
3. term (time frame)
I then stated my requirements and they both agreed.
This didn't take more than 3 minutes! One is a rehabber and the other a builder. They knew what they needed...I told them what I needed...deal!
Thanks for all of the comments and feedback......
@Rob Beland There is no buzzer... The point is to keep it simple and have an elevator pitch. It could be 1 or 3 mins but chances are you'll lose lender interest after that. For example a quick pitch might go something like "“I want to buy and rehab this single family house which is a 3 bed / 2 bath / 2 car garage split level that fits well with the majority of those in the immediate area. I’ve budgeted to pay around $50,000 for this foreclosure and probably put $30,000 in to it. I’m expecting to re-list for sale for $129,900 within 90 days. I know my profit will vary some but after calculating my initial costs, holding costs, and resale costs, I am expecting to make roughly $20,000. I have successfully completed 3 flip projects in the past. I currently own my own house and 1 rental property. I am trying to keep my initial costs low but I do have up to $10,000 to work with if necessary." The main reason for this is because most lenders look at a lot of possible deals on a regular basis and of course you want yours to be consider and quickly. The objective is to get your deal in the hopper and then yes the lender and you will spend much more time on the specifics. And if you ever need any help or more clarification just ask here I am sure we can all assist. Thanks for the post.
@John R. you're spot on thanks for the clarification!
@Account Closed I agree local HMLs generally price differently and usually know their area which also helps, especially if the investor is out of state which happens all of the time in my area.
Thanks @Account Closed for the explanation. I haven't yet went after hard money but in the event I have a need it's good to know what to expect going into it as to not waste my time or the lender's time.
While I do agree to some extent, I do not think it's fair to lump all hard money lenders into this category. Yes, you should definitely be able to give a quick overview of who you are, what your experience is, and what you intend on doing with the loan; but your inability to quickly answer all three questions may not be a complete deal-breaker . There are programs dedicated to the novice borrower who has interest in real estate investments but may not have the expertise to quickly summarize what specific project they have in mind. These lenders may have suggested target markets, tips for your first transaction, or even team you up with an "adviser" to help walk you through the steps. In summary, it's about matching with the lender who can help you reach your real estate goals.
You would not believe how many times I ignore inquiries from supposed "investors" seeking information about my rates and requirements, because they can't communicate at an adult level. Sharing my story, from the money-side perspective, might be eye-opening for those seeking private funding.
It began when I subscribed to a "private money" newsletter. My name was added to a list of potential private lenders, and the email/phone inquiries soon began. As someone who consummates approximately two deals per month, I have experience in the arena of funding real estate acquisitions, remodels, and flips.
Imagine yourself responding to a job ad - the employer wants to know he can establish a working relationship with you, and that you will be motivated and reliable when it comes to performing the job you're applying for. Putting yourself in the employer's shoes, how would you rate the following applications (or resumes) received from different applicants:
- One consisting of only the following sentence: "Please tell me more about your job and how much you'll pay me." (equivalent to "What are your rates and how much do you charge?")
- One consisting of only the following sentence: "Are you hiring?" (equivalent to "Are you loaning money?")
- One which only provides non-relevant information as it relates to the applicant's job qualifications; none of which can be used to qualify the applicant's ability or motivation to perform the job. (equivalent to "here's my life story - now can I have the job?")
- One which delves into the person's prior relevant experience, their relevant educational background (be it reading books on the subject or helping a mentor), their long-term goals and general business plan, and what they're looking for.
Sadly, the majority of the inquiries are from the first three categories - rarely is there one with enough common (and business) sense to communicate what's relevant. Those who lack foundational (the ability to read and write at a high school level) or social skills are also the first to take offense to the fact that I "discriminate" against them... because I'm unwilling to risk my money on them. I've always found this sense of entitlement (that you should be the one who governs how my money is spent) entertaining... especially since I grew up poor in a gang-infested neighborhood.
Seriously - How can I take you seriously, if you can't conduct yourself in an adult fashion and (on top of that) lack any type of business sense? Do you really think I would feel comfortable loaning you money, knowing you don't pay attention to the important details in a business relationship (such as the loan repayment schedule)?
The next time you're applying for something, be it a job or a loan, you might want to make yourself take some time to answer the question, "what could I convey to this person in our first contact that will help them realize I'm qualified to receive what I'm applying for?"
PS - The ones that I've said "yes" to, I've come to trust. We work on an informal basis, I fund them overnight (based on a phone call and existing escrow relationship), some of the paperwork sometimes gets done after the fact, and keep each other apprised of what's going on.
@Account Closed as a general statement those HML who only do asset based loans were not in business prior to 08 melt down... those of us who were... realized hey its all our money and with no skin in the game or doing no underwriting of the borrower is a quick way to take on bad loans... those that have no money and no credit or very poor credit.. Unless its specifically related to 08 meltdown are poor credit risks and as such they need to pay for the risk.. and they need to have significant skin in the game. At least lenders that want to stay in business I think will agree !
This is a great post @JJ Pawlowski !
I run into this on a daily basis. I speak at many events about how to present your deal to hard money lenders and how to use hard money in general. I have seen many "investor packets" which are taught by some of those seminars that investors can attend. They are pretty good. There is a one page summary, one page of pics, one page of the scope of work, and one numbers page (more or less). This has everything I need. But the bottomline is that all of us lenders (should be) asset based and all I ever require to get going on a loan is the following:
- Purchase Price
- Rehab Estimate
- ARV Estimate
- Pictures (if non online)
That is all I need 95% of the time in order to get my clients a pretty good idea of what their preliminary quote would look like. This can be done fast too, usually within an hour. Most importantly, DON'T ARGUE with your lender or try to CONVINCE them of a higher value. Remember, lenders take a conservative approach to the underwriting and even more importantly, maybe they see something the investor misses, and therefore could be saving you a lot of money if not saving you from LOSING money!! :-)
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