Hard money

20 Replies

hi everyone, I have been doing alot of research on hard money lenders. I have been speaking with dohardmoney and others. Has anyone dealt with them in the past? Whats your personal experiences with using a hard money lender? My business partner is being very cautious (rightfully so) about using hard money lenders. 

Thanks,

Aaron

I do not use hard money, however I know plenty of people who do.  

If I were you though I would use a hard money lender.  There is one huge benefit I feel to using hard money that does not get mentioned very often.  That is that the hard money lender is going to come out and review your project.  So you are getting another set of eyes from a very experienced investor on your project.  If they look at it and do not want to lend on the project it is a project you should be running away from.  If they do want to lend on it, you have a very good chance of making some nice money on the project.

Originally posted by @Russell Brazil :

I do not use hard money, however I know plenty of people who do.  

If I were you though I would use a hard money lender.  There is one huge benefit I feel to using hard money that does not get mentioned very often.  That is that the hard money lender is going to come out and review your project.  So you are getting another set of eyes from a very experienced investor on your project.  If they look at it and do not want to lend on the project it is a project you should be running away from.  If they do want to lend on it, you have a very good chance of making some nice money on the project.

 Thanks Russell. The only thing I am leerie of is give the lender "X" amount of dollars and each property get denied. The way you put it makes more sense than the way the online reviews were portraying it. One review acted as if a certain hard money lender was turning down potential flips on purpose in order to keep getting money for inspections, but if the flips were no good then I can see why. 


@Aaron Breiding That is why you need to use someone local and not a large national broker. They will come out and look at the property if is conveniently local to you. The type of HML I am thinking about is something more along the lines of 1 private investor making the loan to you.

@Russell Brazil great advice. I is one and have been one.. and that is exactly what a good HML does.. when I was in the trade I looked at every loan ( the ones in PDX) the out of state one's were more a high volume machine type play and very small so risk was less.

@Aaron Breiding   you should only pay for valuation.. how you want to get set up is get with the lender you want to use have them vette you financially.. then its just a matter of lining up the property... and you should know a good deal from a bad one pretty quickly

@Aaron Breiding

From my experience as a HML, thats a major red flag. There are plenty of trustworthy lenders that don't ask for the upfront fees you mentioned. Some lenders are in it for themselves i.e. foreclosures and collecting appraisal fees. However, many HML's and PML's will not cost you a dime until you have a good project in escrow and will be closing. Most of the lenders that promise 100% financing are to good to be true and most likely in it for the former rather than the latter. If you have any questions or concerns with your current lender feel free to PM me, its pretty easy to spot a good quote from a bad one. I don't lend in Ohio, it would only be simply to help a fellow BP member from getting the run around. It happens too often.

Originally posted by @Jay Hinrichs :

@Russell Brazil great advice. I is one and have been one.. and that is exactly what a good HML does.. when I was in the trade I looked at every loan ( the ones in PDX) the out of state one's were more a high volume machine type play and very small so risk was less.

@Aaron Breiding  you should only pay for valuation.. how you want to get set up is get with the lender you want to use have them vette you financially.. then its just a matter of lining up the property... and you should know a good deal from a bad one pretty quickly

Thanks Jay. This goes a long way from someone who have funded HML's.

@Aaron Breiding Since I work with a lot of investors, I am often courted by hard money lenders much like how realtors are often courted by mortgage brokers. My clients here in Orlando, Florida typically purchase homes with zero inspection, without contingencies and need to make sure when they put a deposit down a property they have a reliable hard money lender that will fund on time. With that being said, I have witnessed horror stories as other agents in my office have had hard money lenders promise to fund on time and the day of closing back out of the deal. There are multiple reasons for this happening. 

The majority of the time when deals don't close are because:

1. Sometimes private lenders over commit and do not have enough capital to fund deals

2. They find out the investor presented bad comps then decide to back out after giving an approval. Aka wholesaler inflated values to get a sale.

3. The deals dont fund on time because the lenders aren't given paperwork on time.

4. Many hard money lenders say they can close within a short time frame but really take longer. Most lenders say they can close in a week here in town, but it really takes about 10 to 14 business days.

In the past I've had success by doing the following

1. Shop around and get commitments from different hard money lenders. 

2. Make sure you have a specific property in mind when talking to lenders. Have them do as much of their underwriting process before contracting on the property as possible.

3. Get referrals from folks that have actually had a deal fund with hard money lenders.

4. Make sure you stay on top of them to ensure they fund on time. I normally tell them I need to fund sooner than I really need to. If it is closing in 10 days, I tell them that I need to close in 8.

5. When you find one to work with, keep two on deck as a back up in case something goes wrong. 

6. Tell a friend if you find a good hard money lender :)

Originally posted by @Jeff Joachim :

@Aaron Breiding Since I work with a lot of investors, I am often courted by hard money lenders much like how realtors are often courted by mortgage brokers. My clients here in Orlando, Florida typically purchase homes with zero inspection, without contingencies and need to make sure when they put a deposit down a property they have a reliable hard money lender that will fund on time. With that being said, I have witnessed horror stories as other agents in my office have had hard money lenders promise to fund on time and the day of closing back out of the deal. There are multiple reasons for this happening. 

The majority of the time when deals don't close are because:

1. Sometimes private lenders over commit and do not have enough capital to fund deals

2. They find out the investor presented bad comps then decide to back out after giving an approval. Aka wholesaler inflated values to get a sale.

3. The deals dont fund on time because the lenders aren't given paperwork on time.

4. Many hard money lenders say they can close within a short time frame but really take longer. Most lenders say they can close in a week here in town, but it really takes about 10 to 14 business days.

In the past I've had success by doing the following

1. Shop around and get commitments from different hard money lenders. 

2. Make sure you have a specific property in mind when talking to lenders. Have them do as much of their underwriting process before contracting on the property as possible.

3. Get referrals from folks that have actually had a deal fund with hard money lenders.

4. Make sure you stay on top of them to ensure they fund on time. I normally tell them I need to fund sooner than I really need to. If it is closing in 10 days, I tell them that I need to close in 8.

5. When you find one to work with, keep two on deck as a back up in case something goes wrong. 

6. Tell a friend if you find a good hard money lender :)

Thanks Jeff, I like this strategy you presented. Since these lenders are private, can you mention you have other lenders lined up hoping for a better deal or is that bad etiquette? 

@Aaron Breiding I normally let folks know that I am shopping around and I am looking for the best terms. Most people will respect that. I've always been cautious to maintain good terms with the lenders I decide to pass on. You never know when you will need them to bail you out of a deal, if the other folks are unreliable. 

I broker hard money.

There are up front fees that go to appraisal or BPO depending on what the end lender requires.  DO NOT order the appraisal yourself.  It may not be acceptable to the lender.

We don't charge an application fee or anything like that up front, only fees that will go to third parties.

Every segment of lending has its place and specific use.  Don't be afraid of it; use it for what it is, a temporary solution to an immediate need.  Hard money is useful if you have a large spread (purchase price to rehab to end value) and don't have the capital to do the job yourself.  

Hello BP Members!

New to the site and wondering if any of the HML providers making comments work in SE Michigan?...or can refer me to someone working in Michigan.

Thank you and have a great day!

@John Lampertius I can't recommend anyone but a quick google search should be pretty easy to spot a few. As many above have said I highly recommend using a local lender. They will be much easier/understanding and will have actual knowledge of your market. Not to mention you can actually speak with a decision maker.

Originally posted by @Zack Lofton :

@John Lampertius I can't recommend anyone but a quick google search should be pretty easy to spot a few. As many above have said I highly recommend using a local lender. They will be much easier/understanding and will have actual knowledge of your market. Not to mention you can actually speak with a decision maker.

Thanks Zack.  I did find a local lender.  Cheers, John

Does anyone happen to have a list of questions to guide a newbie in interviewing hard money lenders? As someone who knows well enough to know that even after months and months of intense research I am bound to make mistakes, I'd sure like to leverage the experience of others and try to avoid at least one or two of them! :)

Originally posted by @Aaron Breiding :

hi everyone, I have been doing alot of research on hard money lenders. I have been speaking with dohardmoney and others. Has anyone dealt with them in the past? Whats your personal experiences with using a hard money lender? My business partner is being very cautious (rightfully so) about using hard money lenders. 

Thanks,

Aaron

Quick and simple version Hard money is exactly that hard to get money. If you do get hard money on one of your deals. Make sure you have an exit strategy. You do not want to be in that money long. It can get very expensive quick. At the same time it worth it your number make sense. 

If the numbers make sense go for it.

Couple larger Hard money guys, I laugh at their rates, but folks are using them. So what do I know

Alex, 

Originally posted by Jessica Maleski:

Does anyone happen to have a list of questions to guide a newbie in interviewing hard money lenders? As someone who knows well enough to know that even after months and months of intense research I am bound to make mistakes, I'd sure like to leverage the experience of others and try to avoid at least one or two of them! :)

I was just sitting down to start compiling a list. I too am a newbie...

this is what i have compiled in 5 minutes. contributions and feedback are encouraged

  • describe your ideal borrower?
  • tell me about your company..
  • what are the top mistakes you see rookies make?
  • what can i do to prep to make your life easier?
  • what do some of your best borrowers do?
  • tell me about your rates.... are they negotable
  • i have great credit but no money. one of my family members has both money and credit. can we both be on the loan?
  • anything else?

i am sure i am missing some key questions

Disclosure - I am Director of PR for DoHardMoney

At DoHardMoney we do things a little different than most Hard Money Lenders and as a result we’ve disrupted things in a way that competitors feel the need to raise doubts and concerns about our systematic approach and our business model. In addition, we occasionally get individuals that “know someone” that’s done business with us and because of the unique approach new investors can get confused on the process we follow.

So here’s a breakdown of questions and concerns that frequently come up.

  • 1.First and foremost, if you are a customer and you’ve had an experience that’s caused you any frustration we’d invite you to contact us directly and give us an opportunity to resolve your concerns.
  • 2.Most Hard Money Lenders require 10-20% Down, decent credit and some experience. We have no down payment requirements. If you have 10-20% down we might not be the best option for you, but for the individual that's looking at a high ROI by not having to bring a lot of money to the table we might be your best option. Also, we work with investors that have bad credit and we don't require past experience.
  • 3.Our Interest Rate is 15-18% as an Annualized Rate. Our standard loan is a 5-month term which puts the effective rate at 6.25% - 7.5%. So a loan of $100K would have an interest rate of $6,250 to $7,500. Compared to a loan with a 12% interest rate you’re looking at a difference of $1,250 - $2500.
  • 4.Each property does go through an evaluation process where we send out 2-3 local independent evaluators to the property to determine the After Repair Value of the property. They are local licensed real estate agents that are active in the local community. They pull 3 active and 3 sold comps in addition to completing an interior evaluation of the property with an initial breakdown of needed repairs to get the property in resalable condition. The evaluation process does require $650.
  • 5.In part, with the evaluation process, you are paying for a quick turn time. Our Evaluators will be out to the property within 24-48 hours of us reviewing your loan application with you. If the initial numbers look good there’s no time to waste and we understand the need to get the results of the evaluation back to you ask quickly as possible.
  • 6.The draw back to an appraisal, you’re hanging your hat on one individual’s opinion, the turn time is 5-10 business days, appraisers’ expertise is in establishing the As-Is Value not the After Repair Value.
  • 7.We do require a $2500 deposit to get access to 100% Financing. We will finance up to 70% of the ARV with no required down payment. If you're purchase, rehab and closing costs are 70% or less you will bring nothing to the table. In addition to this, the deposit gives you access to the following:
  • a.Advanced Deal Analysis Software – enter the purchase price, rehab costs and After Repair Value and we’ll give you a comprehensive break down including costs, net profit, and potential cash to close.
  • b.Access to Proof of Funds – 24/7
  • c.Contracts and Checklists
  • d.Additional Tools & Resources to help you avoid common pit falls in evaluating, rehabbing, negotiating and reselling the property.
  • e.Your first evaluation is covered with the deposit.
  • f.If the needed funding is more than 70% but it’s still a profitable deal, we’ll work with you to potentially wholesale the property and still make money on the deal.
  • g.The remaining $1850 is rebated back to you once you resale your first property.
  • 8.Just like every other Hard Money Lender, one of the biggest challenges is helping new investors get dialed in on establishing accurate After Repair Values. Most complaints on bigger pockets are customers that are frustrated with the After Repair Value that’s established by our local evaluators. It can be disheartening when the values don’t come back as high as hoped. This frequently is a case of overly optimistic investors looking at a deal from a best case scenario. When there are disagreements with the potential borrower we do provide a dispute process allowing the customer to have us take a second look at the evaluations.
  • 9.We’re not pretending to be something we’re not. For a lot of new investors with limited options we are often times the only viable option they have. We’re more than happy to give you a comparable breakdown of how our costs and cash to close compare to other Hard Money Lenders.  
Originally posted by @Russell Brazil :

I do not use hard money, however I know plenty of people who do.  

If I were you though I would use a hard money lender.  There is one huge benefit I feel to using hard money that does not get mentioned very often.  That is that the hard money lender is going to come out and review your project.  So you are getting another set of eyes from a very experienced investor on your project.  If they look at it and do not want to lend on the project it is a project you should be running away from.  If they do want to lend on it, you have a very good chance of making some nice money on the project.

 This is a really good point and one that gets overlooked often. Thanks for bringing it up. 

Originally posted by @Jacque Fairbourn :

Disclosure - I am Director of PR for DoHardMoney

At DoHardMoney we do things a little different than most Hard Money Lenders and as a result we’ve disrupted things in a way that competitors feel the need to raise doubts and concerns about our systematic approach and our business model. In addition, we occasionally get individuals that “know someone” that’s done business with us and because of the unique approach new investors can get confused on the process we follow.

So here’s a breakdown of questions and concerns that frequently come up.

  • 1.First and foremost, if you are a customer and you’ve had an experience that’s caused you any frustration we’d invite you to contact us directly and give us an opportunity to resolve your concerns.
  • 2.Most Hard Money Lenders require 10-20% Down, decent credit and some experience. We have no down payment requirements. If you have 10-20% down we might not be the best option for you, but for the individual that's looking at a high ROI by not having to bring a lot of money to the table we might be your best option. Also, we work with investors that have bad credit and we don't require past experience.
  • 3.Our Interest Rate is 15-18% as an Annualized Rate. Our standard loan is a 5-month term which puts the effective rate at 6.25% - 7.5%. So a loan of $100K would have an interest rate of $6,250 to $7,500. Compared to a loan with a 12% interest rate you’re looking at a difference of $1,250 - $2500.
  • 4.Each property does go through an evaluation process where we send out 2-3 local independent evaluators to the property to determine the After Repair Value of the property. They are local licensed real estate agents that are active in the local community. They pull 3 active and 3 sold comps in addition to completing an interior evaluation of the property with an initial breakdown of needed repairs to get the property in resalable condition. The evaluation process does require $650.
  • 5.In part, with the evaluation process, you are paying for a quick turn time. Our Evaluators will be out to the property within 24-48 hours of us reviewing your loan application with you. If the initial numbers look good there’s no time to waste and we understand the need to get the results of the evaluation back to you ask quickly as possible.
  • 6.The draw back to an appraisal, you’re hanging your hat on one individual’s opinion, the turn time is 5-10 business days, appraisers’ expertise is in establishing the As-Is Value not the After Repair Value.
  • 7.We do require a $2500 deposit to get access to 100% Financing. We will finance up to 70% of the ARV with no required down payment. If you're purchase, rehab and closing costs are 70% or less you will bring nothing to the table. In addition to this, the deposit gives you access to the following:
  • a.Advanced Deal Analysis Software – enter the purchase price, rehab costs and After Repair Value and we’ll give you a comprehensive break down including costs, net profit, and potential cash to close.
  • b.Access to Proof of Funds – 24/7
  • c.Contracts and Checklists
  • d.Additional Tools & Resources to help you avoid common pit falls in evaluating, rehabbing, negotiating and reselling the property.
  • e.Your first evaluation is covered with the deposit.
  • f.If the needed funding is more than 70% but it’s still a profitable deal, we’ll work with you to potentially wholesale the property and still make money on the deal.
  • g.The remaining $1850 is rebated back to you once you resale your first property.
  • 8.Just like every other Hard Money Lender, one of the biggest challenges is helping new investors get dialed in on establishing accurate After Repair Values. Most complaints on bigger pockets are customers that are frustrated with the After Repair Value that’s established by our local evaluators. It can be disheartening when the values don’t come back as high as hoped. This frequently is a case of overly optimistic investors looking at a deal from a best case scenario. When there are disagreements with the potential borrower we do provide a dispute process allowing the customer to have us take a second look at the evaluations.
  • 9.We’re not pretending to be something we’re not. For a lot of new investors with limited options we are often times the only viable option they have. We’re more than happy to give you a comparable breakdown of how our costs and cash to close compare to other Hard Money Lenders.  

 This is a great post. Thanks for the clarity.