Hard money/private lending before or after deal?

18 Replies

Working with a couple wholesalers, see deals I can jump on but they go fast. Wanting to get capital from private lendor/ hard money lendor but from what I understand I'd have to present a deal to them before getting capital lined up. Should I ask for a recent sale from wholesaler to use as an example to present to lendor? Just wondering how i can quickly get capital lined up from lendor and get a target property lined up all simultaneously so that I can close quickly? Any advice is appreciated.

To throw my two cents in here, the best thing from a lenders perspective is to have everything lined up when you apply for funding. Have the P&S agreement if possible, your business docs, ect ready that way the lender can immediately get information down and start processing and get you moving to closing quicker.

Most hard money lenders can move quickly, in some cases, a matter of days. As long as you are confident in your credit/experience history, you should be able to move forward on securing a deal and then reaching out to your lender. With that said, it wouldn't hurt to have one or two lenders lined up in advance. Note, things like title and appraisal are out of the lender's hands when it comes to timing. Don't put yourself behind the 8-ball from a timing standpoint with your wholesaler.

When you say, have one or two lenders lined up in advance, what do you mean exactly? The question I think she is asking and that I would like to know is HOW do you line up lenders BEFORE you have a property to show them? what numbers do you give them to line up the financing?

@Bonnie White search the biggerpocket's forum for "proof of funds." Do some reading. The thing that talks the most is a lot of cash in an account in your name. If you can't do that, proof of funds is something you should read in grave detail about. It would be a proof of funds, from a lender, showing their willingness to lend to you if the deal happens. 

@Gabrielle Simmons

Private lenders require networking. There are institutional private/hard money lenders (secondary market) and then there are truly private lenders using their Self Directed retirement Funds, ie.e.,IRA/401K. If your looking for private lenders (sdrf) go to REIA meetings, meetups, Real Estate conferences, etc.

I did my first deal using a HML. I knew that's what I wanted to do so I had all of paper ready to go. Fortunately the deal I found was so good the HML didn't make me go thru the rest of the qualifying process. They gave me POF letter and applied the $1000 good faith payment that I made to the 10% downpayment. We closed in under 10 days.

Most Hard money lenders can move pretty quickly and you will not miss reasonable deadlines. We tend to be highly motivated to close quickly. 

In my experience if I have to send a loan pre-approval, and we are fine sending them, it's an almost certain sign that the potential loan is not going to happen. (Just sayin'!). Our experienced borrowers just line up the next purchase and trust us to close within usually 2 weeks. If there are delays these tend to be outside the lenders control (title, appraisers, borrowers...).

Best wishes.

@Benjamin Hurwitz

So it sounds like: Get the property under contract, put a 10-14 day close, and as long as we and the title company move it, you can get it done.?

I always recommend involving your lender or a private money broker before you push send on your offer or LOI. This way they can help you structure your offer so it will fall under their guidelines.

You can also get a terms offer before you push send so you know your numbers work. Some lenders will provide a loan analysis so you will even know the possible ROI % and profit.

There are a lot of advantages to having a relationship with a Private Money Broker. Lenders trust the ones they work with and discount the points so you never pay more. You may want to work with one who brokers for more than 1 lender. They can sometimes get you say 9% instead of 11%. 

Originally posted by @Joe Cassandra :

@Benjamin Hurwitz

So it sounds like: Get the property under contract, put a 10-14 day close, and as long as we and the title company move it, you can get it done.?

 Usually yes. Of course if you have in mind a property have a chat first with the lender including giving them the address you had in mind.  They might have minimum loan sizes or minimum credit score requirements or the property might be too rural for their tastes etc... A five minute chat will likely clear these up. I personally speak to a dozen or two such potential clients a day. 

But yes two weeks or even slightly less is reasonable if the borrower and appraiser can get their acts together. Once the appraisal comes back it's usually just few days longer and a few more grey hairs from me chasing people around for these rush jobs ;) until closing.

Best wishes. 

Originally posted by @Gabrielle Simmons :

Working with a couple wholesalers, see deals I can jump on but they go fast. Wanting to get capital from private lendor/ hard money lendor but from what I understand I'd have to present a deal to them before getting capital lined up. Should I ask for a recent sale from wholesaler to use as an example to present to lendor? Just wondering how i can quickly get capital lined up from lendor and get a target property lined up all simultaneously so that I can close quickly? Any advice is appreciated.

Hey Gabrielle

The lender can only move as fast as you give him the information he needs to make a decision.  Once you get that to them, they can say "Looks good, go find a property". They are usually going to need the following information. :

  • Application
  • Credit
  • Entity docs (Articles of Formation, SS4 letter from IRS, W9, Operating Agreement with Member List and if the LLC is old, a certificate of good standing from the Secretary of State's office)
  • They lender will order an appraisal or BPO that you will pay for.
  • Scope of work
  • Purchase and Sale Agreement
  • Hazard and Title company contact information
  • Your ID's
  • Sometimes 2 month's bank statements

It's incumbent on the borrower to do their due diligence to make sure the numbers are tight. A good rule of thumb would be to make sure your total loan to value based on the after repair value doesn't exceed 70%. That means you will have to buy the property right to be able to purchase it and then renovate it under those parameters. Sometimes lender's appraisals and BPO's for the final numbers come out much lower than anticipated. It happens, but make sure you have contingencies built into your purchase and sale contract. Be prepared to walk away.

Hope that helps

Stephanie