Seeking hard money lenders, Do's and Dont's

[Travis Deaver]

Just starting out, and I'm looking to do find a HML any Do's and Dont's would be most appreciated.

[Jeff S.]

Why do people participate on a public forum and then say message me privately?

Here are some thoughts, in no real order, @Travis Deaver.  Hopefully actionable.

DO

1) Do start looking for money now. Yesterday would have been better. Do look for money as aggressively as you look for properties.

2) Do stay off the internet when looking for a lender. This is a business based on personal relationships. Real estate clubs are a good place to start because you can get an initial impression of each other face-to-face and get your initial questions answered.

3) Do prepare a list of informed questions for your prospective lender. Here are a few threads that could help:

Questions for Hard Money Lenders

How to Vet a Private Lender

Due Diligence on Private Lenders

4) Do know and be able to defend your numbers on any property. Most lenders will (really must) do an independent evaluation anyway and should be happy to share their opinion and their spreadsheet.

5) Do borrow as locally as you can. Forget web-based sellers of lender lists, most of which are scams, and multi-state far-away lenders, who likely have no understanding of you or your area and might not be sympathetic to any problems you might have after you’ve borrowed the money.

6) Do understand licensing and usury requirements in your state, at a minimum. This will help you determine if a lender is legit and knows what he or she is doing. (Especially true for out of state lenders, who must follow your state’s lending laws. You’re not using an out of state lender anyway, though. Right?)

7) LinkedIn, Craigslist, Connected Investors, and the like can be cesspools of scammers. Do you know how to tell if someone is an online scammer?

8) Do obtain independent references and referrals from other borrowers as best you can. Understand of course, that borrowers often hold their best lenders as close to the vest as possible.

9) Do maintain a stable of vetted lenders you can pick and choose from as your properties, and their criteria, fit. Lending criteria from private lenders are generally as different as fingerprints.

10) I don’t care how big they seem, until they’ve proven themselves 110% reliable, do make sure your lender has the cash available to lend. If they say they have to rely on an investor to fund, or another deal to close before they have the cash, then pass.

11) When it comes time to repay, do check all closing calculations. Most people are honest but everyone can make a mistake. It astonishes me how few borrowers do this.

12) State specific but do use an appropriately licensed and experienced Hard Money Lender or Broker to originate your private loans thru either Escrow & Title or a closing attorney. Hard Money Lenders are experienced with private money. They will have vetted paperwork, and the experience to evaluate you, your deal, and your private lender if they are not experienced. Many, but not all HMLs & brokers will do this for a nominal fee that you will pay. This will protect you and an inexperienced lender. Ask around. (Not a solicitation. We don't do this.)

13) Do what you say, show up on time, return all calls, and pay all bills when due. Did I really have to say this?

DON'T

1) Don’t agree to pay any up-front fees. If legit (most are junk fees) these should be paid only at closing, when your lender performs. Appraisal costs paid directly to an appraiser, and perhaps a nominal credit check fee, are the only exception.

2) Don’t overpay for a property, compromise your expected returns, or ever feel desperate to do a deal. Similarly, don't subscribe to the myth that if you find a great deal, the money will somehow appear. This is the stuff pedaled by gurus.

3) Don't think the numbers won't apply to you or that they will somehow work out. You are not exempt from losing money. You’ll understand this the first time you sell a property and have to bring a check to the closing table.

4) Similarly, don’t ask a lender to loan on a substandard deal or outside of their criteria because you’re either having a hard time finding properties or you want to take an unusual risk.

5) Unless you’re just asking for some friendly advice or info, don’t present deals you do not have under contract. The cold reality is that many/most deals you believe you’re 100% certain to obtain, will fall through.

6) Don’t ever ask anyone who is inexperienced to loan you money in second position.

7) Don’t do business with friends or family. Nothing will forever change a relationship faster than when money is involved. Losing the money of a family member will make for many uncomfortable Thanksgivings.

8) Don’t come here asking if Peter Pauper from Peoria, who just sent you a copy of a driver’s license and some BS paperwork, is a legit lender in your state. If you have to ask, he’s not – and you knew that. (You’re not still willing to borrow money from a stranger on the internet, are you?)

9) Don’t give out any personal info until you are 100% certain you know with whom you are dealing and how they will protect that info.

10) Don’t give out any personal info until you are 100% certain you know with whom you are dealing and how they will protect that info. Yes, I wrote that twice.

11) Don't fall into the myth, often repeated here, that there is any legal difference between a Hard Money Lender and Private Lender. These are marketing terms representing non-conventional loans. The same lending laws apply whether the loan is from your Aunt Mildred or a giant mega HML at a fancy address. If you insist on borrowing from Aunt Mildred, make sure she is as secured and protected as the giant mega HML would be. (See 12, above)

12) Similarly, don’t think that a properly originated loan consists only of a Note and Deed-of-Trust or Mortgage. This is frequently stated on this board by very knowledgeable and astute real estate investors who don’t fully understand lending.

13) Don’t get lending docs from a title company or (yikes!!!) off the internet.  These are neither your lawyer nor your lender's.  You'll have no idea what you are using. Protect any inexperienced lender.

14) Don’t get your lending or borrowing advice off the Internet. Especially from me!!! This is why Lending Lawyers were invented. Understand that real estate lawyers and closing attorneys are not Lending Lawyers.

15) Don’t play games. If you agree to do a deal, do it, and expect nothing less from your lender.

Hope this is a bit actionable, Travis.

@Travis Deaver