Becoming a hard money lender

[Kara Hooppell]

hello,

I know this is a long shot but I was wondering what a good amount of money would be to start a hard money lending business? I would only have about 5k to start out with and I know that's not alot but is it possible?

[Jay Hinrichs]

@Kara Hooppell  depends on the state and the regs.. in our state of Oregon for instance any loan under 50k is subject to usury.

As a passive investor you may want to look at investing with HML brokers in your area so you can learn a little about the process etc.

In CA you can do what is called a Multi Bene  loan IE multiple investors in one loan this allows smaller investors to participate prorate in larger deals... In most areas loans are going to be significantly higher than 5k. 

To actually start a HML Business were your running a company and making loans you really need millions to be effective in the market place.. if you make one loan and have no more bullets you will be hard pressed to keep borrowers coming back.

A nice number to start a HML business is 5 million of available funds.. you make about 12 to 16% on that ( if everyone pays) and in some markets more... So we can use the low number of 12% that generates 600k a year in income.. say 100k or more for overhead.

leaving you with 500k as the owner pay your tax's  get your normal write offs individually and maybe tax is 200k.. leaves you with 300k in net profit or about 8% of sales.  Most like to net 10%. 

HML gets good when you have 20 to 50 million and can keep a handle on your overhead especially in states that commercial purpose loans are not subject to Safe act rules, like Oregon and Nevada are.

So that's my take on HML and how the numbers would flush out if you want to open a HML business. Now this assumes the capital is yours.. If your using others capital then your income is significantly less

IE if you have to pay our investors 10% and your just making the points .. 5 million may only bring you in 100 to 150k gross... For brokerage activities  IE brokering others money.. 

And you generally have to be pretty experienced before folks start letting you broker their money.