HARD MONEY LENDERS - What is your vetting process?

Question

Once you've found a few HMLs that offer favorable terms, how you do you go about vetting/qualifying them?

Thank you all in advance for your time and insight!

Grant Thompson · Answer

Caesar,

References from other investors is by far the best way to get to know if the lender is easy to work with.

Jeff S. · Answer

Checking references is but one important part of vetting a lender, @Caesar Perez.  Asking other investors who they use can be helpful but understand that many will hold their best lenders close to the vest.

I’d also be very careful of online recommendations since you don’t know who wrote these.  And certainly, do not find your lenders online.  There are way too many very slick scammers out there.  Plus, this is a business based on relationships, not online anonymity.

Local real estate clubs are your best bet; face-to-face, and there are many in your area you can find on Meetup.  Prepare a list of informed questions, such as these, that you can ask potential lenders. Here, you’ll be able to ask others in the club for recommendations in addition to the club operator, who will know the reputable lenders that regularly attend.

Educate yourself as well, so you know the correct answers to your questions. No matter where you borrow, you should have a basic understanding of the licensing and usury requirements in the associated state.  For example, to call yourself a lender in CA, you must be licensed in CA.  This generally means a CA Real Estate Brokers license thru the DRE or a CA Finance Lender’s License thru the DFPI.  In CA, you do not have to register with the NMLS, which by the way is not a license, unless you are making consumer purpose loans.  I’ll guess you are borrowing for a business purpose.  Learn that difference too.

Last, Private/Hard money lenders have criteria as different as fingerprints.  Interview many and keep a stable in your back pocket that you can pick and choose from as your deals, and their criteria, fit.

Armed with a bit of planning, it shouldn’t be hard to find some safe and reliable lenders, Caesar.  Best of luck to you.

Aaron Byrne · Answer

Definitely look for reviews on the HML. They typically will have several online pages (Zillow, Yelp, Google) that you can go to and read about other investor's experience. Since the investors used as a reference likely have a long standing relationship with the HML, chances are that same investor has left the HML a review on one or more of their online platforms. As each account on those sites is typically tied to a personal name/email address, that should help when verifying their authenticity. Also, the investor should be willing to offer up the property addresses for a house or two where they used that particular HML to complete their project. If you are willing to do a little digging, you can usually find some reference of the security instrument recorded in local public records to validate the relationship since a reputable HML will secure their lien against collateral (the subject property). So far as licenses go, a firm will have an NMLS license if they are originating loans in a commercial capacity, so be wary of those which do not publish that information outright online or cannot provide it when asked.

Alex Bekeza · Answer

@Caesar Perez Bigger Pockets Reviews would be a great screening tool since they're linked to the investor's profiles who wrote them.

Michael Noto · Answer

I agree with @Grant Thompson. The local hard money lending business is very much done based on word of mouth and people vouching for one another.

Mike Oconnell · Answer

If you are looking for hard money lenders, look for as many online reviews as possible as these are typically established businesses. If you are looking for private lenders, get as many personal references as possible as these are usually individuals.

Caesar Perez · Answer

Thank you both very much for your responses. Makes sense. I guess my next question is: how do I verify the reference that I'm speaking to has actually worked with that hard money lender? Also, are there any licenses or organizations that I should be looking for?

@Grant Thompson

@Michael Noto

HARD MONEY LENDERS - What is your vetting process?

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