Becoming a Hard Money Lender

7 Replies

Hello,

I am a new real estate investor, and a currently now co-own 5 units worth of rentals in Northwest Ohio. My partner and I currently have about 100k in funds available, so we would like to test the waters in hard money lending as opposed to just letting that money sit in cash. 

I am looking for any general advice for starting out. What documents do I need to request from my attorney? What resources are best to determine points and interest rates to charge on these loans? Is it reasonable to give hard money loans to flippers who are not within close proximity to me?

Any advice would be appreciated. Thanks!

Hi Trevor,

What types of returns are you looking for? Besides lending to fix-and-flippers, another option is becoming a passive investor in apartment syndications. Solid returns with less risk. Also, you have experience with rentals, so it would be an easier transition!

Trevor, you can start by contacting area HMLs to get a feel for what they are charging.  As far as what documents are needed, that question is best answered by a local attorney.  Regarding proximity, keep in mind you, or someone you hire (and trust) will need to inspect the properties prior to closing and along the way as repair draws are made.

Originally posted by @Theo Hicks :

Hi Trevor,

What types of returns are you looking for? Besides lending to fix-and-flippers, another option is becoming a passive investor in apartment syndications. Solid returns with less risk. Also, you have experience with rentals, so it would be an easier transition!

Thanks for the reply Theo. In terms of apartment syndications, we are not trying to keep our money tied up long-term so that when we are ready to pursue our next rental, we can have the funds within a reasonable amount of time. I would say we are looking for 10-14% returns with hard money loans. 

@Trevor Dominique 10% to 14% annualized returns including the profit at sale is totally doable. But, in apartment syndications, you're capital will likely be tied up for 5 to 7 years, unless the syndicator sells early, refinances or secures a supplemental loan.

Another option would be to find a multifamily syndicator who takes on debt investors. Then, you'll make a ongoing return and receive all of your capital back in a few years.

@Trevor Dominique In addition to what @Jeff Ledyard mentioned, you should join local REI meetups and talk to HML, investors, flippers in person. Get your name known to generate interest. You may also be able to find investor-friendly attorney through these meetups. As far as the process goes, you need to be able to underwrite a deal based on your own criteria. You will also have to set this criteria and share it with the potential clients interested to borrow from you. Once the potential requests to borrow funds are submitted to you, it is up to you to do the due diligence and determine whether each and every deal is qualified or not.

Good luck!