How to Vet a Private/Hard Money Lender

7 Replies

What are some good questions to ask a lender to determine if they are legitimate or a scammer? What are some things to look out for? Also, I’m assuming someone with a website is not a private lender.

Go with someone that your friends who are investors have used in the past. 

Go to their office. Dont use someone online. How could you know that they even exist if they are online.

Since I am sure that you are in your local REIA, see who is a sponsor of the REIA, they are legit.

Make friends at your local REIA.

If they only email and will not answer the phone, ever. Or they dont have a phone number, its a scam.

I have used people from out of town, but in a city as big as San Antonio, there are lots of people local to deal with. They may be 1/2 or 1 percent higher, but thats ok. It will not ruin the deal if I paid a little more to get deals done. I am sure there are lots of companies in Raleigh that do hard money also. 

Originally posted by @Will Parks :

What are some good questions to ask a lender to determine if they are legitimate or a scammer? What are some things to look out for? Also, I’m assuming someone with a website is not a private lender.

When I was lending to flippers out of my SDIRA account, I went through this on the lending side. This was a decade ago and I no longer straight up lend. The simplest answer to see if they are legit is to ask about their real estate history. Do they own property? Have they lent on 'deals' before? Also ask how they vet their borrowers. I don't know any private lenders (although I only know a few in the area) who aren't well experienced in real estate. I would be leery of any private lender without lots of property history/ownership/experience. If this is in Wake County, their transactions will be in the county books and recorded with the register of deeds so you can 'trust but verify' that in fact the story you get is real. 

BTW, the definition of a 'private lender' (not HML) when I was operating meant, literally, "private lender." My contacts were via other non-TREIA people by word of mouth. Back then, I had to educate other REI on how the private lending model worked because there were virtually no PL around. Now, the private lender definition has become much wider and includes $1B lenders that resemble banks or HML (although with a lot better rates.) 

@Will Parks we recently started doing private/hard money loans after getting tired of tenant problems. We never ask for any upfront money which is definitely a red flag. all of our deals come from a mortgage broker. Obviously there’s a cost for you as a borrower to go through a broker but at least you’ll have confidence the lender is legit. 

@Will Parks Your best bet is to find a private HML through word of mouth. The local REIA (was TREIA, now called NCREIA) is a great place to start--you are in Raleigh, correct? There are a lot of solid private lenders in the area (you can check us out at -- we do have a website, most don't--which doesn't make anyone a better or worse alternative). You'll likely find that most of the points and interest rates are fairly comparable among the local well-known lenders, but that each lender does have different terms and conditions. You'll want to ask about pre-payment penalties, what fees are involved other than points and interest, make sure that the length of loan meets with your needs, and have a conversation with the lender to confirm that you are comfortable doing business together.

@Will Parks When using "Private Money" you are typically going to someone who you personally know. If it is a group soliciting you to take a loan from them with a lien on a hard asset, then they are a hard money lender.

Private money shouldn't be a scam as it should be someone you know. It will be a friend or family member or maybe just an acquaintance. Either way, you have a personal connecting with the person. Make sure everything is in writing. No handshake deals. This protects everyone involved.

Hard money is much trickier. There has been a history of abuse in this industry. I would look out for the following things:

  1. 1) They do not require any money up front and all payments are through a title company. NEVER pay a HML anything before closing and all payments at closing should flow through a title company, escrow office, or RE attorney's office. After you close you will make payments directly to the lender but nothing should ever go directly to the lender before or during closing.
  2. 2) What they offer should never be too good to be true. You won't find 7% hard money and 1% origination if it is your first deal. You may never find rates that good unless you are make a substantial down payment.
  3. 3) Ask for references, recent closings, or other info on deals that have been done in your area. This should be easy for them to provide to you.
  4. 4) Watch response time. You should be getting responses within 4 hours. If it is taking longer than that while they are trying to win your business, how long do you think it will take once they already have you locked in?

These are the big things I look for when dealing with HMLs. I took my first hard money loan in 2015 and have used them a lot over the past 6 years to scale my flips and rentals. Hope this list helps.