Why YOU should become a hard money lender: 1. VERY limited risk if you underwrite properly2. returns up to 60% per anum or more3. easy easy investment--just collect mailbox money4. much LESS work than being a landlord5. returns are steady and will NOT fluctuate like the stock market6. returns are guaranteed by contract unlike stocksThis is NOT legal advice, it is MY personal experience. My last loan yielded 36% per anum. I have one expected to pay off Aug 1 yielding 29% per anum. Like ANY investment, things can go wrong--BUT--you have a written contract AND good collateral if underwritten properly. There are lots of BS guys promising pie in the sky returns in the RE realm. If you choose to become a HML you must KNOW YOUR STATE LAWS. Make great money and STAY OUT OF TROUBLE! My returns are in FL and your laws will vary as to rates, etc.I would like to thank @Jay Hinrichs for helping me become better at this.

As a private (HML) that lends in ANY state, I will jump into the "discussion". Single family, owner occupied homes, all fall under both FHA AND Consumer Financial Protection Agency, whether or not the loan is for a consumer purpose or business purpose. Period. However, as previously mentioned, an owner occupied, or personal residence, securing a BUSINESS purpose loans, while falling under FHA and CFPB, would not fall under Dodd-Frank, and hence not under the NMLS. Now that we've clarified THAT, what about commercial property and non owner occupied residences? Well, here the Federal Government is out of the picture, UNLESS the loan purpose is consumer, not business. If the purpose is consumer, IT DOES NOT MATTER IF THE COLLATERAL IS COMMERCIAL OR RESIDENTIAL. A consumer loan will fall under the CFBP jurisdiction, regardless of the collateral securing the loan. Okay, now to 1-4 family non owner occupied commercial purpose. Well, as noted above, the Federal Gov is out. There are a few states which regulate 1-4 family non o/o and not commercial, there are also a few states which regulate commercial and not 1-4 family non o/o, and a few states that regulate both. The usual method of regulation in these 14 states is the requirement of a mortgage brokers state license to originate commercial loans, with most states carving out exceptions for occasional loans or lenders who do not originate, i.e go through a licensed broker. Among the states that require a commercial mortgage broker/originator to be licensed are Nevada and Arizona. Two states that actually require a real estate broker license to originate commercial mortgage loans are California and New York. I used to hold real estate broker licenses in Texas, New York, California, and mortgage broker licenses in Arizona and Nevada. I gave up all but my Texas Real Estate Broker license. Now if we want to make a loan in a state (and we lend on commercial property only) that requires licensing, and no exemption exists, we do it through a mortgage broker licensed in that state (most of our deal flow is through brokers anyway). It has become obvious to me through the years, that since 36 states have no need to require a license for commercial loans, that the states that do do it for one or more of these three reasons. 1- To raise money for the state treasury 2- to "protect" a special interest, i.e. the state residents who engage in that activity and want to become licensed to lessen competition, and/or 3- as a continuation of the socialistic big brother political thinking prevalent in that state. Now, licensing requirement for consumer or owner occupied loans may be a different situation. Here, there may be more justification for some government regulation (I believe the less the better). No body wants their aged parents or grandparents taken advantage of by a slick talking fraudster. And in truth, I have to acknowledge that although Dodd Frank and CFPB swings WAY too far on the side of regulation, it was BAD BEHAVIOR by major players in the home mortgage industry that gave justification to the pro regulation lobby.

@Cody L. that's exactly right Cody... We are all licensed here in Oregon to do business I have an NMLS license I keep it current although not active now.. this company comes into our state and does 200 loans with no license so yes they should have known better.. they got a cease and desist from the state and were happy to take their principal back.. same with those that want to loan and break the Usury laws.. the law is the law ... so I see no problem with my Karma.. There are 12 states were doing 1 to 4 unit loans in the US require licensure if your going to hold yourself out as a HML.. But hey its just the cost of doing business. they got their principal back .. many lenders would love to get their principal back when they make bad deals... Why do you think lenders need licenses do you think lenders doing loans to Homeowners should just do the loans with no license when its required because some government permission is needed.... If you choose to be in that field just do it right. Not sure many would argue with that...

I see, when there is an advantage you follow the law, otherwise, no. By the way, the public has decided via the lawmakers that a license is required in CA if you do 8 or more loans in a year or charge more than 10%. Anything above 10% is usury, which is illegal. Usury is so important to the people that it's not just a statute, it's in the state constitution.

Some of us traditional lenders have found brokered/wholesale sources that are getting MBSs containing HML-like loans stamped AAA++, and selling them on Wall Street (letting income of the property take the place of any personal income documentation requirements, etc). That's what makes the comparatively low rate and low/no discount points possible. I'm not really interested in competing with HML for loans that should be HML, and the ones that don't need to be will find their way to me or someone like me no matter what, so I'm happy to share your comparative advantage over anything getting put in an MBS: speed and collateral standards. - Speed. Because we have investor guidelines, we can't close in one week like you can. You can do what you want, it's your money. It takes a good underwriter about 45 minutes to know if a deal is going to fly or not, the rest of the time is spent checking boxes. You can skip checking boxes, and simply fund it immediately after 45 minutes plus an appraisal. - Collateral. Property standards with these guys are a bit lower than Fannie/Freddie, but they still actually exist. You have flexibility here that no one pooling them in MBSs can have. You can lend on a burnt down shack if you want, we can't (unless it's reno, which gets us back to speed/timing issues...). - Rate/points. In theory you could match the rate/points made possible by MBS pooling and selling to Wall Street, but I honestly don't think you should. If Wall Street isn't paying you 3 or 4 points on the back-end, go ahead and charge it on the front end, focusing on the folks that need the speed and reduced collateral standards. Those two areas are where the HML will continue to be able to out-compete our stuff. Beat up collateral, and it needs to fund next week? HML folks can have at it and good luck, I'll be there for the refi when the dust settles. :P

@John Thedford unfortunately again every state is different our great state of ORYGUN if you are domiciled here IE your company is based here is does not matter were the property is located if its. 1 to 4 units Regardless of the purpose of the loan you must be NMLS registered and state licensed.. I know because I was under the impression even though I was licensed that I did not need to report my out of state activity on my state reports.. State of Oregon does bi annual reviews in your office... the gal asked how many loans I did I said none she said really ( remember all my loans at the time were out of state) I said no my attorney said I don't need to as my loans are all out in the mid west.. She says and she opens the code book to show me.. That does not matter were the loan is if its 1 to 4 units regardless of the purpose and you hold your self out as a lender ( and obviously you do since your licensed) then you fall under our jurisdiction and need to conform to our reporting standards and our disclosure docs. She then says would you like to restate how many loans you made the last 24 months.. I said well since you put it that way about 432 loans I think :) I did not get a fine I was lucky but I learned a lesson... Had I not been licensed I would have got wrung up like the other companies... I did get demerits which meant they came back in 12 months for another audit which I passed... And like I said I made one post about making a loan in Nevada and got a Nasty gram from that state regulator.. Basically saying we see your licensed NMLS but not in Nevada and if you have made a loan here we need to know and If you did your subject to disciplinary actions etc etc.. I had to sign a notarized affidavit that I had never done a loan in Nevada which I had not. Account Closed Mortgage states in my mind are the province of locals most of the time.. Texas is wide open and is Deed of trust and is closer you may want to check there before FLA... although I am not a fan of owning property in Texas personally but that does not mean it can't be a good place to lend if done correctly.

Why YOU Should Become A Hard Money Lender

Elizabeth Abernathy

Investor · Las Vegas, NV · Member since 2016 · 5 posts · 1 vote

9y

Thanks for the information John. Are the higher returns due to upfront points charged?

To get 36% per annum do you charge 3 points and the loan pays off in 30 days?

0 Reply

Richard Miller

Aubrey, TX · Member since 2014 · 37 posts · 12 votes

9y

I have just recently thought about this method of investing as I'm concerned about the bubble. I'm all cash currently and think either this or wholesaling is something semi-safe at this moment. Would you mind providing any details about those recent loans and how they were underwritten?

0 Reply

Cody L.

Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes

9y

I used to do a bit of HML. But now it seems that there are so many people looking to loan out money that returns are compressed. A HML in Houston that used to loan at 12+% is now doing 7-8% with 1 point. Crazy.

0 Reply

Account Closed

Lender · Los Angeles, CA · Member since 2015 · 399 posts · 174 votes

9y

I'm only able to get returns in the mid teens, how do you get your ROI so high @John Thedford?

0 Reply

John Thedford

OP

Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes

9y

@Account Closed

Returns can skyrocket with points and fast payoffs.

0 Reply

John Thedford

OP

Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes

9y

Originally posted by @Cody L.:

I used to do a bit of HML. But now it seems that there are so many people looking to loan out money that returns are compressed.

A HML in Houston that used to loan at 12+% is now doing 7-8% with 1 point. Crazy.

That happens. However, once you have established relationships with people that count on you and know you will fund the loans as promised, some borrowers are happy that they found someone not full of empty promises. Ever see the posts on BP from borrowers that are in a bind because their HML backed out at the last minute? Those kinds of lenders won't do well.

1 Reply

John Thedford

OP

Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes

9y

Originally posted by @Richard Miller:

I have just recently thought about this method of investing as I'm concerned about the bubble. I'm all cash currently and think either this or wholesaling is something semi-safe at this moment. Would you mind providing any details about those recent loans and how they were underwritten?

I charge interest plus points. If you get an early payoff, returns can go quite high. I have some that earn about 16.5% per anum. Those people pay monthly, and I expect them to drag out for a couple of years. Even so, that return is decent.

1 Reply

John Thedford

OP

Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes

9y

Originally posted by @Elizabeth Abernathy:

Thanks for the information John. Are the higher returns due to upfront points charged?

To get 36% per annum do you charge 3 points and the loan pays off in 30 days?

I get 4 points. When borrowers ask my rates and don't want to pay those rates, they go elsewhere. Other borrowers will pay-especially the people I have established relationships with. As I noted in this thread, sometimes it is being RELIABLE and not backing out after I promise to fund deals. One borrower that recently paid off called me a week later wanting more money on another deal. That was about four weeks ago. I funded this week AS PROMISED. The BS guys that make promises and never follow through won't make it in any business. You CAN get great returns. I know one BP member that often gets over 100% return...HONEST! He takes an equity position.

2 Reply

John Thedford

OP

Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes

9y

BTW-I also do buy and hold SFR. The returns are not nearly as high but you get monthly cash flow AND tax benefits. There are -0- tax benefits in HML as far as I know. For this reason, I do HML using my retirement account and defer all income. I hold my RE outside of my retirement account so I can live on cash flow and also get tax benefits.

5 Reply

Account Closed

Lender · Los Angeles, CA · Member since 2015 · 399 posts · 174 votes

9y

Originally posted by @John Thedford:

@Account Closed

Returns can skyrocket with points and fast payoffs.

Okay, but what is the ROI when you consider the time the money isn't being lent? If the money is lent for one month and not lent the next that reduces your ROI by 50%.

0 Reply

David Weintraub

Lender · Berkeley, CA · Member since 2017 · 1k+ posts · 549 votes

9y

I work for a hard money lender her, and while it is certainly fruitful for the owners it's not necessarily the easiest to find qualified clients. Like anything else, it is a grind, but I happen to like it. That said, the rates are being pressed downward as the competition is fierce

3 Reply

John Thedford

OP

Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes

9y

Originally posted by @Account Closed:

Originally posted by @John Thedford:

@Account Closed

Returns can skyrocket with points and fast payoffs.

Okay, but what is the ROI when you consider the time the money isn't being lent? If the money is lent for one month and not lent the next that reduces your ROI by 50%.

I don't have THAT problem. My money never sits long and I can get it back out. The returns I noted above are for loans that have matured. If you can keep the money out earning an annual rate near 30%, 3 or four weeks sitting in my account has little effect.

0 Reply

Katherine S.

Investor · Grosse Pointe Shores, MI · Member since 2017 · 160 posts · 74 votes

9y

@John Thedford

John, how much money would you need to have available to get started in HML?

1 Reply

John Thedford

OP

Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes

9y

Originally posted by @David Weintraub:

I work for a hard money lender her, and while it is certainly fruitful for the owners it's not necessarily the easiest to find qualified clients.

Like anything else, it is a grind, but I happen to like it.

That said, the rates are being pressed downward as the competition is fierce

I hear of lower rates, and see ads for them. However, some HML want you to jump through 19 hoops. I lend solely on the value of the property and LTV. You MUST lend using the 3 C's as @Jay Hinrichs teaches. Other lenders us the 5 C's. Once you have good borrowers that like you and rely on your service, the will often come back over and over. Reliability is one huge factor.

1 Reply

Account Closed

Lender · Los Angeles, CA · Member since 2015 · 399 posts · 174 votes

9y

Originally posted by @John Thedford:

Originally posted by @Account Closed:

Originally posted by @John Thedford:

@Account Closed

Returns can skyrocket with points and fast payoffs.

Okay, but what is the ROI when you consider the time the money isn't being lent? If the money is lent for one month and not lent the next that reduces your ROI by 50%.

I don't have THAT problem. My money never sits long and I can get it back out. The returns I noted above are for loans that have matured. If you can keep the money out earning an annual rate near 30%, 3 or four weeks sitting in my account has little effect.

Cool ... you've obviously been doing this for a while and built some good relationships allowing keep the money out most of the time.

Another question if you don't mind, you mentioned 4 pts, what kind of interest do you get? I'm getting 2pts and 10% here in CA, lending to flippers, sounds like FL is higher. Also, is FL being a mortgage state (court filings to foreclose) much of a problem, or is that simply a non-issue because you are selective who you lend to?

1 Reply

John Thedford

OP

Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes

9y

Originally posted by @Account Closed:

@Account Closed

Returns can skyrocket with points and fast payoffs.

Okay, but what is the ROI when you consider the time the money isn't being lent? If the money is lent for one month and not lent the next that reduces your ROI by 50%.

I don't have THAT problem. My money never sits long and I can get it back out. The returns I noted above are for loans that have matured. If you can keep the money out earning an annual rate near 30%, 3 or four weeks sitting in my account has little effect.

Cool ... you've obviously been doing this for a while and built some good relationships allowing keep the money out most of the time.

Another question if you don't mind, you mentioned 4 pts, what kind of interest do you get? I'm getting 2pts and 10% here in CA, lending to flippers, sounds like FL is higher. Also, is FL being a mortgage state (court filings to foreclose) much of a problem, or is that simply a non-issue because you are selective who you lend to?

12 plus 4. I used to believe my loans would never go bad. Not true. I have had some defaults but usually cleared up via attorney letters. Borrowers then have to pay past due monies as well as attorney fees. I have five years of doing this. I have one bad loan that MAY end up being a loser for me. Small loan under 60K. They do own other properties, and once resolved, they will not be able to sell, refinance, or purchase other properties until the judgement is paid off. Learned my lesson on that one by not making them put skin in the game! As in anything, learn from mistakes...and don't do it again:)

2 Reply

John Thedford

OP

Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes

9y

Originally posted by @Katherine S.:

@John Thedford

John, how much money would you need to have available to get started in HML?

The more the better. Even if you start with 50K the money can grow rapidly. I do have one out at 50K and on that one I charged 12% plus 6 points and wrote for two years. I really prefer to do at least 100K when possible. I learned not to waste my time doing tiny loans such as 20K--you make a high return but the dollars are small.

1 Reply

Account Closed

Lender · Los Angeles, CA · Member since 2015 · 399 posts · 174 votes

9y

Originally posted by @John Thedford:

Originally posted by @Account Closed:

Originally posted by @John Thedford:

Originally posted by @Account Closed:

Originally posted by @John Thedford:

@Account Closed

Returns can skyrocket with points and fast payoffs.

Okay, but what is the ROI when you consider the time the money isn't being lent? If the money is lent for one month and not lent the next that reduces your ROI by 50%.

I don't have THAT problem. My money never sits long and I can get it back out. The returns I noted above are for loans that have matured. If you can keep the money out earning an annual rate near 30%, 3 or four weeks sitting in my account has little effect.

Cool ... you've obviously been doing this for a while and built some good relationships allowing keep the money out most of the time.

Another question if you don't mind, you mentioned 4 pts, what kind of interest do you get? I'm getting 2pts and 10% here in CA, lending to flippers, sounds like FL is higher. Also, is FL being a mortgage state (court filings to foreclose) much of a problem, or is that simply a non-issue because you are selective who you lend to?

12plus 4. I used to believe my loans would never go bad. Not true. I have had some defaults but usually cleared up via attorney letters. Borrowers then have to pay past due monies as well as attorney fees. I have five years of doing this. I have one bad loan that MAY end up being a loser for me. Small loan under 60K. They do own other properties, and once resolved, they will not be able to sell, refinance, or purchase other properties until the judgement is paid off. Learned my lesson on that one by not making them put skin in the game! As in anything, learn from mistakes...and don't do it again:)

Since I have your ear, and your being so helpful, thank you for that, what is your average loan amount? I'm more or less coastal CA, loan amounts are crazy high, for me, so I moved more inland. I presume you are lending to flippers in and around Naples FL?

1 Reply

John Thedford

OP

Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes

9y

Originally posted by @Account Closed:

Originally posted by @John Thedford:

Originally posted by @Account Closed:

Originally posted by @John Thedford:

Originally posted by @Account Closed:

Originally posted by @John Thedford:

@Account Closed

Returns can skyrocket with points and fast payoffs.

Okay, but what is the ROI when you consider the time the money isn't being lent? If the money is lent for one month and not lent the next that reduces your ROI by 50%.

I don't have THAT problem. My money never sits long and I can get it back out. The returns I noted above are for loans that have matured. If you can keep the money out earning an annual rate near 30%, 3 or four weeks sitting in my account has little effect.

Cool ... you've obviously been doing this for a while and built some good relationships allowing keep the money out most of the time.

Another question if you don't mind, you mentioned 4 pts, what kind of interest do you get? I'm getting 2pts and 10% here in CA, lending to flippers, sounds like FL is higher. Also, is FL being a mortgage state (court filings to foreclose) much of a problem, or is that simply a non-issue because you are selective who you lend to?

12plus 4. I used to believe my loans would never go bad. Not true. I have had some defaults but usually cleared up via attorney letters. Borrowers then have to pay past due monies as well as attorney fees. I have five years of doing this. I have one bad loan that MAY end up being a loser for me. Small loan under 60K. They do own other properties, and once resolved, they will not be able to sell, refinance, or purchase other properties until the judgement is paid off. Learned my lesson on that one by not making them put skin in the game! As in anything, learn from mistakes...and don't do it again:)

Since I have your ear, and your being so helpful, thank you for that, what is your average loan amount? I'm more or less coastal CA, loan amounts are crazy high, for me, so I moved more inland. I presume you are lending to flippers in and around Naples FL?

I have quite a few. They vary from 50K to over 100K. Most are to flippers but I do have the occasional owner of rentals that needs cash and I do those as well.

0 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

9y

John thanks for the mention:

couple items from my point of view

1. always do first position unless you have the money to pay off the first with cash if your going to entertain a second position if you do not have the CASH to pay off the first you can end up losing all your money doing gap funding or second positions. In this business you have to hope for the best and plan for the worst.

2. For sure check your state laws.. if you hold your self out as a lender in any Manner in certain states CA being one you need proper licensure... failure to do so can lead to treble damages.. OR NV are other states.. One lender in Oregon that made HML here on 1 to 4 with no license ( they did 200 of them LOL) and should have known better.. One of my clients was able to payoff and deducted all payments from principal. Borrower was quite grateful for my advice on how to handle a unlicensed lender.

3. As discussed above RAtes are highly regionalized..

4. create long term lasting relationships leverage over rate many times is what flippers are looking for if they want to scale.

5. Great way to start in this is with a really good local HML that will place your money for you.. they make points you make nice rate.. and see how it goes instead of jumping right in.

6. being a real estate agent or broker is a huge advantage as your in the industry and you can do your own comps.. no need for appraisals and all that garbage.

7. AS for starting a HML business you need MAJOR dollars I would say at least 1 million in cash and the ability to get a guidance line or other PPM type investors for another 5 million.. this will give you a 300 to 500k a year salary which is about the minimum you want to work for in this business in my mind.

Other wise its a great option for those that simply don't want to deal with the three TTT's and want better than bank rates.. nothing wrong with very stable great loans making 6 to 9% either... higher the return generally risk goes up.. just like buying rentals... go for high cap rate usually renter / tenant quality is tougher and risk is higher. Same thing here.

Podcast Guest on Show #222

JLH Capital Partners51 Review

Website View Page

6 Reply

David Weintraub

Lender · Berkeley, CA · Member since 2017 · 1k+ posts · 549 votes

9y

I think it's a broad term. There are firms more institutional in nature and then individual hard money lenders. Everyone falls under a large umbrella, but different standards for each.

0 Reply

David Weintraub

Lender · Berkeley, CA · Member since 2017 · 1k+ posts · 549 votes

9y

All I can speak to is what we do. If we qualify you, can get appraisal and title insurance, we've never not funded a client. Can't imagine a HML pulling out on a borrower short of the borrower having an absurd amount of money out but having not paid loans back on time. If a borrower gets too far over the skis I can see the brakes being put on.

0 Reply

Elizabeth Abernathy

Investor · Las Vegas, NV · Member since 2016 · 5 posts · 1 vote

9y

John - Thanks for the helpful information!

0 Reply

John Thedford

OP

Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes

9y

Originally posted by @Elizabeth Abernathy:

John - Thanks for the helpful information!

You are welcome. This can be a very profitable niche.

0 Reply

John Thedford

OP

Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes

9y

@Jay Hinrichs

I didn't start with 1M but am getting close to having that!

0 Reply

Why YOU Should Become A Hard Money Lender

Why YOU Should Become A Hard Money Lender

Most Popular Reply

59 Replies