Looking to Move into the Hard Money Space - Feeling Stuck
Member since 2024 · 18 posts · 8 votes
After a lifetime in residential real estate I'm finally wising up and wanting to diversify a bit and start dipping my toes in the HM/PM space. I've got about $400k to loan and if I can prove my model to myself, I have access to another $1m in cash. I am getting clear on my buy box and hoping to stay local (WA state) with my lending. With all that in mind, I'm assuming that my first step is to create an LLC entity for protection and then have an attorney create a loan package with a note...right? I posted on a local group asking for attorney referrals and got some responses about my plan that made me question if this is infact what I need to do to start as a number of people said escrow will create these docs for me.
What say you oh wise ones with experience? What are my first moves to take action?
After a lifetime in residential real estate I'm finally wising up and wanting to diversify a bit and start dipping my toes in the HM/PM space. I've got about $400k to loan and if I can prove my model to myself, I have access to another $1m in cash. I am getting clear on my buy box and hoping to stay local (WA state) with my lending. With all that in mind, I'm assuming that my first step is to create an LLC entity for protection and then have an attorney create a loan package with a note...right? I posted on a local group asking for attorney referrals and got some responses about my plan that made me question if this is infact what I need to do to start as a number of people said escrow will create these docs for me.
What say you oh wise ones with experience? What are my first moves to take action?
Sarah, I am a small local direct lender in the Houston area. When i started out the hardmoney mastermind with Jason Balin and Chris Haddon was extremely useful. A lot of lenders of various sizes on there that can help with some of the logistical questions, software, contracts, recommendations etc.
I also have quite a few good book titles on getting into lending.
Use an attorney. Particularly one familiar with PM/HM, Promissory Notes, Property Liens, etc. If anything goes south on a given loan, you already are working with an attorney.
My 2 cents,
Mike
After a lifetime in residential real estate I'm finally wising up and wanting to diversify a bit and start dipping my toes in the HM/PM space. I've got about $400k to loan and if I can prove my model to myself, I have access to another $1m in cash. I am getting clear on my buy box and hoping to stay local (WA state) with my lending. With all that in mind, I'm assuming that my first step is to create an LLC entity for protection and then have an attorney create a loan package with a note...right? I posted on a local group asking for attorney referrals and got some responses about my plan that made me question if this is infact what I need to do to start as a number of people said escrow will create these docs for me.
What say you oh wise ones with experience? What are my first moves to take action?
Use an attorney. Particularly one familiar with PM/HM, Promissory Notes, Property Liens, etc. If anything goes south on a given loan, you already are working with an attorney.
My 2 cents,
Mike
Makes total sense! Thanks Mike
Sarah,
Almost forgot to mention a BiggerPockets featured book: "Lend to Live" by Beth Pinkley Johnson and Alexandria Breshears. This is the private lending bible. Get it, read it, use it.
Mike
(it's in the BP Store)
Sarah,
Almost forgot to mention a BiggerPockets featured book: "Lend to Live" by Beth Pinkley Johnson and Alexandria Breshears. This is the private lending bible. Get it, read it, use it.
Mike
(it's in the BP Store)
Sarah,
Almost forgot to mention a BiggerPockets featured book: "Lend to Live" by Beth Pinkley Johnson and Alexandria Breshears. This is the private lending bible. Get it, read it, use it.
Mike
(it's in the BP Store)
Excellent!
After a lifetime in residential real estate I'm finally wising up and wanting to diversify a bit and start dipping my toes in the HM/PM space. I've got about $400k to loan and if I can prove my model to myself, I have access to another $1m in cash. I am getting clear on my buy box and hoping to stay local (WA state) with my lending. With all that in mind, I'm assuming that my first step is to create an LLC entity for protection and then have an attorney create a loan package with a note...right? I posted on a local group asking for attorney referrals and got some responses about my plan that made me question if this is infact what I need to do to start as a number of people said escrow will create these docs for me.
What say you oh wise ones with experience? What are my first moves to take action?
Sarah, I am a small local direct lender in the Houston area. When i started out the hardmoney mastermind with Jason Balin and Chris Haddon was extremely useful. A lot of lenders of various sizes on there that can help with some of the logistical questions, software, contracts, recommendations etc.
I also have quite a few good book titles on getting into lending.
After a lifetime in residential real estate I'm finally wising up and wanting to diversify a bit and start dipping my toes in the HM/PM space. I've got about $400k to loan and if I can prove my model to myself, I have access to another $1m in cash. I am getting clear on my buy box and hoping to stay local (WA state) with my lending. With all that in mind, I'm assuming that my first step is to create an LLC entity for protection and then have an attorney create a loan package with a note...right? I posted on a local group asking for attorney referrals and got some responses about my plan that made me question if this is infact what I need to do to start as a number of people said escrow will create these docs for me.
What say you oh wise ones with experience? What are my first moves to take action?
Sarah, I am a small local direct lender in the Houston area. When i started out the hardmoney mastermind with Jason Balin and Chris Haddon was extremely useful. A lot of lenders of various sizes on there that can help with some of the logistical questions, software, contracts, recommendations etc.
I also have quite a few good book titles on getting into lending.
@Sarah Reece Beth Johnson hangs around all the local REI meet ups here in wa. I'd get involved in the investor community here if you haven't already done so. Lots of people already doing what you're thinking about doing who are help to provide help.
To be a private lender you need to be able to analyze deals. Is the borrower a flipper, BRRRR investor or rental investor? The type matters and their plan on acquisition and exit strategy. Typical documents are a mortgage or deed of trust (depends on your state, I believe Washington is a deed of trust state), and a promissory note. You are now the bank with all the protections of foreclosure procedures.
I always have my attorney prepare the documents. Analyzing the project is critical. Success of the borrower. How many homes have they flipped? Tell me a project that went off the rails and how did you get it back on. It all about what if something goes wrong.
Best of Luck.
More info at the bottom of this thread https://www.biggerpockets.com/forums/49/topics/1188012-how-d...
Are you planning to hypothecate?
@SarahReece do not know them but maybe research on companies like this https://pinefinancialgroup.com/investors/become-hard-money-l...
One thing many who enter the alternative lending space fail to consider is who is their target borrower? Why will they decide to borrow from you over the thousands of other banks and alternative lenders out there? The more established borrowers with a track record likely have their banking relationships in place so how to you earn their business? They are most likely going to be the better borrowers, with greater success rates on execution along with likely having access to better deal flow and thus the better collateral. Often times those who enter the alt lending space wind up with novices as their customer base with poorly located collateral and limited experience. Sure the underwriting can be done in a way to ensure the LTC is low but do you really want to own that asset in the event of a default? Sometimes it makes more sense to invest through a debt fund that has operation systems in place and most importantly relationships with more established borrowers. I am not here to endorse any particular established alt. lender, just something to be mindful of.
Types of investors who want to find hard money lenders include:
Sometimes, homeowners facing foreclosure may utilize hard money loans to avoid losing their homes.
https://www.biggerpockets.com/blog/how-to-become-a-hard-mone...
After a lifetime in residential real estate I'm finally wising up and wanting to diversify a bit and start dipping my toes in the HM/PM space. I've got about $400k to loan and if I can prove my model to myself, I have access to another $1m in cash. I am getting clear on my buy box and hoping to stay local (WA state) with my lending. With all that in mind, I'm assuming that my first step is to create an LLC entity for protection and then have an attorney create a loan package with a note...right? I posted on a local group asking for attorney referrals and got some responses about my plan that made me question if this is infact what I need to do to start as a number of people said escrow will create these docs for me.
What say you oh wise ones with experience? What are my first moves to take action?
Sarah, I am a small local direct lender in the Houston area. When i started out the hardmoney mastermind with Jason Balin and Chris Haddon was extremely useful. A lot of lenders of various sizes on there that can help with some of the logistical questions, software, contracts, recommendations etc.
I also have quite a few good book titles on getting into lending.
Thank you John! Signing up now...looks like a program and community that will really help.
After a lifetime in residential real estate I'm finally wising up and wanting to diversify a bit and start dipping my toes in the HM/PM space. I've got about $400k to loan and if I can prove my model to myself, I have access to another $1m in cash. I am getting clear on my buy box and hoping to stay local (WA state) with my lending. With all that in mind, I'm assuming that my first step is to create an LLC entity for protection and then have an attorney create a loan package with a note...right? I posted on a local group asking for attorney referrals and got some responses about my plan that made me question if this is infact what I need to do to start as a number of people said escrow will create these docs for me.
What say you oh wise ones with experience? What are my first moves to take action?
Sarah, I am a small local direct lender in the Houston area. When i started out the hardmoney mastermind with Jason Balin and Chris Haddon was extremely useful. A lot of lenders of various sizes on there that can help with some of the logistical questions, software, contracts, recommendations etc.
I also have quite a few good book titles on getting into lending.
My plan is to lend my money only at this stage. I'm open to evolving down the road, but as I am new I don't want to risk anyone else's funds just yet.
@Sarah Reece Beth Johnson hangs around all the local REI meet ups here in wa. I'd get involved in the investor community here if you haven't already done so. Lots of people already doing what you're thinking about doing who are help to provide help.
To be a private lender you need to be able to analyze deals. Is the borrower a flipper, BRRRR investor or rental investor? The type matters and their plan on acquisition and exit strategy. Typical documents are a mortgage or deed of trust (depends on your state, I believe Washington is a deed of trust state), and a promissory note. You are now the bank with all the protections of foreclosure procedures.
I always have my attorney prepare the documents. Analyzing the project is critical. Success of the borrower. How many homes have they flipped? Tell me a project that went off the rails and how did you get it back on. It all about what if something goes wrong.
Best of Luck.
More info at the bottom of this thread https://www.biggerpockets.com/forums/49/topics/1188012-how-d...
Are you planning to hypothecate?
Not at this point, I am looking at short term 6 -12 month loans and if I understand hypothecation it works better with longer notes. I will admit though, I just like saying the word "hypothecation" because I feel really smart when I do 😂 and right now I am feeling a bit, um, unknowledgeable...
@SarahReece do not know them but maybe research on companies like this https://pinefinancialgroup.com/investors/become-hard-money-l...