Becoming a personal hard money lender?

Question

I was just pondering my ability to become a personal hard money lender, and what might be required of me? Now Im not trying to Become a PML investor for another person's company, or use my Self directed IRA... Simply loan my personal funds OR funds that I may have access to. Sort of like a Loan Shark but not really... well yes really... But loaning against Real Property. If anyone has experience in this I am open ears... or in this case open eyes.

PS I've been "google"ing the subject and really all im finding on the specific subject is about how "private" private lending is, thus making the information private or at least, expensive.

Thanks,
Dustin

PS I've been "google"ing the subject and really all im finding on the specific subject is about how "private" private lending is, thus making the information private or at least, expensive.

Thanks,
Dustin

Jon Holdman · Answer

It may be easier to work with a broker than to do it directly. If you can find mortgage brokers in your area that do hard money loans,and let them know you have money to lend, they will do the leg work. You would typically get to inspect the property before you make the loan, and would decide on the value yourself. You'll want an appraisal that considers the repairs. You would inspect the property as the work progresses and would release the rehab money. You'll get a deed of trust or mortgage, and a promissory note from the borrower. You collect the payments, and the payoff when its down. Do all the paperwork ONLY through a title company or lawyer.

If you want to do it directly, just go to your local REIA and let it be known you have money to lend.

Dustin Lyle · Answer

That is exactly what i was looking for... Just some coaching as to if it's a strategy worth looking into.. Seeing as Im hoping to get into some rentals here soon at deep discounts.. If I do then I would certainly be interested in loaning on other peoples good deals after some cashflow/equity buildup.

Thanks for the help jon.

Dustin

Jon Holdman · Answer

Typically you'll want to have enough money to fund an entire deal.  I don't quite understand what you're saying:

Are you saying you would do a cash out refi on your properties, then use that cash to make a HML to another investor?  Sure, that's a strategy.  Doing the cash out refis may be more difficult than you think, and you won't be able to extract all the "equity".  For that matter, the last 10% of "equity" really isn't there since you'll pay that much to sell a property.

You also want to consider the fact that HMLs do in fact sometimes go bad.  The broker I used to work with had three go bad in quick succession after many years of success.  On one of those a friend of mine was the lender.  She now owns the property.  So, you want to be sure whatever deals you make are still good deals if you have to take the property.

There are state (usually) regulations on lending.  If you're doing it with a broker, they should keep you in line.  If you're doing it yourself, you'll want to be sure you understand these regulations and laws.  Would certainly be advisable to spend some time and money with an attorney to get the initial set of documents.

Borrowing at one rate and lending at another is big business.  That's effectively how most financial institutions make their money.

Ken Hicks · Answer

I looked into this a year or so ago, I had the funds but most brokers wanted an annual revenue of $250k for a few years. Yes, I know this may surprise you guys but I don't make $250k a year :oops:  My only option was to work directly with other rehabbers.

Dustin Lyle · Answer

Thanks Guys!
            
            Mr. Holdman you have came through again! I just wasn't so sure if it was that simple.. 
            
            But I have another Question concerning this... If I was to accrue a pretty decent amount of equity on some investments... lets say over the course of 2 years... And was able to cash out refi 200K... Odds are that im getting a better deal on that money than someone looking for some hard money... I could simply loan that out and gain the points and interest difference? Sounds too easy does it not?

Or even 20k for that matter..

Jason Trepins · Answer

you have to determine how much money you will loan, what the terms will be and how exactly you will determine if the project is Worth lending money to(and the person for that sake).

you will also need a baseball bat and a desire to bust kneecaps.

Dustin Lyle · Answer

I wasn't serious about the "loan Shark" portion... But to simplify.

What is needed to Loan my personal funds, Short term and secured by real estate?

Becoming a personal hard money lender?

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