It was on my mind for a while to become hard money/private money lender. I am interested to learn this business and would appreciate greatly initial guidance. In a perfect world I would like to partner up with a mentor. However, before committing to "10,000 hours of learning/practicing the business" while having a full time job I want to make a very balanced educated decision. My ultimate interests: financing the real estate deals: residential and commercial, note investing.
Thanks in advance.
Great question Demjan. So there is a HUGE difference between a hard money lender and a Private Money Lender. A hard money lender deals with points and fees and tons of other expenses attached to the money they lend. Hard money is expensive for investors.
Private money lenders are usually people you personally know and have a relationship with. They lend purely for interest. An example of this: I have a friend who lends me 30k for 5yrs at 8% interest, interest only payments (4% paid every 6 months). Private money lenders DO NOT have points or other filler fees. If they do they are not a private money lender they are a hard money lender trying to trick uninformed investors.
A hard money lender example is much more complicated and would look like 30k, 2points, 12% interest and 6-12months and require a lot more paperwork. There are also silly fees like underwriting fees, paperwork fees and tons of other different ones depending on which hard money lender you work with.
I personally DO NOT use hard money because private money is not only cheaper but also better for every type of possible deal I'll ever do including huge complex deals.
To add onto this - if you want to be a Private Money Lender start going to and meeting with investors. Whether that's through REI meetings or just calling them up and taking them out for lunch to find out about their business and how you could be a part of it.
Let me know if you have more questions.
I am a private money lender in PA. Based on my experience, you need understand real estate market, know how to evaluate the property you are going to lend money on. Also you need to make sure the person you are lending to is reliable. Also you should get familiar with the legal side. Make your state rule on private lending. Most states don’t require license for private lending, but there are 12 states do. Make sure Title is clear and insured, make sure you are first lien holder, and make sure all loan documents in place. Good luck.
@Demjan Van Der Kach I’m sure you’ve already heard this, but you need to get your own attorney. Find someone local that specializes in real estate and they should know how to put together a loan package to protect your money.
Thank you for great points. I explored more on this topic and found some great information.
What is really interesting to me at this point - to clearly understand the "Deal Flow". I saw a few illustrated rehabs on this forum or note purchase. I wish somebody could share the process of hard money lending from start to finish. I hope it is not too much to ask for.