I am getting into hard money lending, but have only lent to experienced flippers so far with awesome LTV ratios. I want to start expanding. What should I ask for when vetting the borrower and project?
Real Estate Consultant · Wittenberg, WI · Member since 2014 · 572 posts · 572 votes
6y
Set your lending parameters and stick to them, whether or not the borrower has experience or not. That being said, if you are interviewing less experienced borrowers, I would ask them for additional collateral or for them to give you an equity participation in the deal on top of your normal loan rates. This will allow you to oversee/mentor them throughout the project. If they are unwilling to follow your terms, don't do the loan.
Attorney · Austin, TX · Member since 2014 · 888 posts · 759 votes
6y
First, done correctly, lending is a full-time job.
Know the statutes related to lending on real property in your state. In the internet age, all the statutes are online for free. Know the requirements to foreclose. If you don't want to learn the laws for lending, you will be better off giving your money to a professional and taking a modest return because you will end up loosing it, paying an attorney to prevent or clean up a mess, or violating the law.
Take a fractional interest in a loan with a seasoned private lender. Take a smaller % of the interest and origination points for walking you through the entire process from start to finish. For example, if the loan is $100K @ 10% APR and 2 points, you put up $50K of the principal and get 4% APR and 0.50 points. The senior lender puts up the other $50K, 6% APR, and 1.50 points. You aren't doing this loan for the return, but for the learning experience.