Ways to Improve the Hard Money Industry
Lender · Greenville, SC · Member since 2012 · 25 posts · 5 votes
Ways to Improve the Hard Money Industry
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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesJustin Thompson, the reason that you didn't get much "traction" is because as in your previous posts you are attempting to use Biggerpockets as an advertising medium for the hard money lender you represent, rather than becoming a contributor to the community.
There are many hard money lenders on this site who have spent years participating, communicating, answering questions, etc, with members. Coming in unknown, announcing that you are "revolutionizing" the industry, and asking a thinly disguised leading "question" so you can promote your business is an obvious ploy most experienced members see through.
If you do have knowledge of the hard money lending industry, taking your time to answer questions, providing unbiased information and sharing your knowledge will go a much longer way to promoting your company than your current "non" participation.
26 Replies
- Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes13y
As someone that has used hard money / private money many times over the years, I think for most people having lenders set out specifically what types of property they lend on, and what types of loans they are willing to do. (new construction, rehabs, flips, / Commercial, residential, multi family) etc. What regions of the country will they loan in, etc.
Also, are there any upfront fees? What exactly are they for? What are your loan terms for various credit scores? What credit scores do you work with? Loan amounts you can do, and how long does it take to close loans?
In other words, be as informative and transparent as possible.
I think it's Don Konipol that belongs to an association that is trying to bring accountability and consistency to hard money lenders. I think it's a great idea.
- 13yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
Justin Thompson, the reason that you didn't get much "traction" is because as in your previous posts you are attempting to use Biggerpockets as an advertising medium for the hard money lender you represent, rather than becoming a contributor to the community.
There are many hard money lenders on this site who have spent years participating, communicating, answering questions, etc, with members. Coming in unknown, announcing that you are "revolutionizing" the industry, and asking a thinly disguised leading "question" so you can promote your business is an obvious ploy most experienced members see through.
If you do have knowledge of the hard money lending industry, taking your time to answer questions, providing unbiased information and sharing your knowledge will go a much longer way to promoting your company than your current "non" participation.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes13y
HML's, in my opion have a bad reputation due to the lack of professionalism, honesty and integrity of those who basically enter the arena with a sence of ruthlessness about profits driven by greed than any public service, not all, but enough to taint the barrel.
Wearing a suit doesn't make you a professional, neither does a bank account, a college education or having an office. IMO it begins with an ethical conduct toward providing a service that employs a high degree of skill and/or knowledge.
Seems there is a lack of knowledge that is simply compensated for by a high rate of interest and 5,6 or 10 points in making a loan decission, many seem to care less if the borrower succeeds or fails, so long as they are well secured to ensure the return of thier money with a high profit. This is not lending, it's scalping.
No one holds a gun on any lender to make a loan, no one is forced to lend money, a lender can always say no, and many times a lender saying no really does a greater service to that potential borrower than lending to them. IMO, many HMLs don't understand this and take advantage of a situation to advance thier self interests irregadless of the outcome to a borrower.
A good lender can assess the risks, the viability of a project, understands the market, is aware of costs and liabilities as well as the legal aspects surrounding the business and from that determine what rate of interest and fees is ethically justified on a case by case basis. Looking at a credit report is only scratching the surface of making a lending decission and using credit as a justification for more profit is more of marketing ploy by a lender than a true risk assessment. Attempting to take all you can is not underwriting.
HMLs aren't banks, they can't borrow through the federal reserve, they have a limited amount of money to work with and while it does make perfectly good sence to maximize profits at the highest utilization of assets, being excessive is not in the public good, nor is it for the industry or themselves in the long run. While some HMLs have a repeat customer base, it would be much larger if they could compete in a wider range of borrowers. I know many HMLs can't lend all they have available or that can be raised simply because they deal in a smaller segment identified as higher risk borrowers.
Many high risk borrowers end up being such due to poor money management, true, but some are in that situation due to no fault of thier own. The near miss borrower, the one that almost qualifies for established loan "programs" is usually treated as badly as the borrower who has no intention of repayment. I have not heard of a HML making a better loan to a near miss applicant than the worst of the worst, perhaps some do. Educating a borrower may have little financial reward initially, but it can be rewarding in public perception which by the way can be very valuable. Instead of attempting to keep a borrower on the constant edge of failure and earning less, it's actually more profitable in the long run to advance your borrower more like a partner than a servant.
Many borrowers also assume they can't get conventional financing, while I know some HMLs point them in the right direction, I'm sure there are just as many who would allow that borrower to continue thinking that the HML is his only hope.
With that, if HMLs were to address a better standard of ethical and moral conduct thier public standing would certainly improve, being known as a specialty lender than a "hard money" loan shark.
This is a view point from a past HML and conventional lender as well. I made alot of money in lending and rarely over ten per cent interest at two points or less. Charging usurus rates and high fees bridges more on criminality, as I said, there are some who should not borrow money just for the sake of doing a project, especially when, if it is a viable project, it can be accomplished through other means like partnerships, buy-sell and repurchase agreements and management arrangements.
I'm sure I'll be blasted, I can hear it now, the HML serves the public, serves those who would otherwise be out of business, assessing risks to the most minute detail (LOL) and since they have money, must be some of the smartest people walking the face of the earth and kindest even giving people a chance to succeed, ......yah right!
HMLs have a bad reputation, until you really need one. But the question posed was how can we clean it up....I think.
Well, follow the lead of the good ones, begin underwriting the deal, asses the real risks involved, employ tatics to reduce or eliminate identified risks, and assess the value truly given and charge fairly for the real risk assumed. If you can't really identify and manage risks then you're cheating the borrower for charging more due to your inability to price your money fairly, simple as that! So, good underwriting and pricing.
Public perception, do you lend to anyone that can fog a mirror for enough money or do you do speciality loans, actually designed and overseen for a venture? If all you know is how to fill out a note abd deed of trust, you're not a professional lender.
Do the people working at the Recorder's Office know you as a shister by all the quick claim deeds you file as deeds-in-lieu, or are you filing more loan modifications and renewals? Ya think they don't have a good idea and have neighbors, talk at church and make recommendations? Really? There is a place in the economy for specialized lending, you can advance yourself so long as you are not seen as a vulture waiting for that over charged handcuffed borrower to fail.
Organize! Educate HMLs from people that have some money to become real lenders, lending professionals. Set a code of ethics, set professional standards that the public can identify. Lobby. Be compliant with lending regulations and stop trying to squeeze by some law by defining what you do as not being applicable. If you're always ducking for cover you certainly can't advance.
Okay, let it fly! Just remember, you asked... LOL
- Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes13y
Have clear rules so we know what you will fund and minimise the unnecessary paperwork.
- Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes13y
Bill G. Tell us how you really feel :) Don Konipol Thanks!
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes13y
I don't dislike HMLs as I've been accused of here, just too many who don't know, may not care and some pretty shady types. Some follow the suggestions I made. Borrowers also need to be smarter and shop around. I'd rather say no than let someone get hung just because they think they have a great deal.....
- Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes13y
Originally posted by Bill Gulley:
I don't dislike HMLs as I've been accused of here, just too many who don't know, may not care and some pretty shady types. Some follow the suggestions I made. Borrowers also need to be smarter and shop around. I'd rather say no than let someone get hung just because they think they have a great deal.....But other than that, and your long rant above, you don't dislike HML's. LOL!
Justin Thompson, you might consider joining and attending the American Association of Private Lenders. The organzation is dedicated to promoting ethical standards of behavior and improving the industry. I don't see Lima on the membership roster.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes13y
Originally posted by Ann Bellamy:
Originally posted by Bill Gulley:
I don't dislike HMLs as I've been accused of here, just too many who don't know, may not care and some pretty shady types. Some follow the suggestions I made. Borrowers also need to be smarter and shop around. I'd rather say no than let someone get hung just because they think they have a great deal.....But other than that, and your long rant above, you don't dislike HML's. LOL!
No Ann, I spent alot of time fixing what others did or attempted to do in my area, squeezing borrowers, setting up someone to fail. Might be unique to my area but probably not.
Hate the sin, not the sinner. :)
- Lender · Los Angeles, CA · Member since 2012 · 147 posts · 76 votes13y
Wow!
Powerful comments, some hard words, but great thread! (IMHO)
As far as what's wrong with the hard money industry, I'm partly responsible. (For California)
No, I'm not a ripoff lender, but I am the Education Chair for the largest (well, for that matter, the only) statewide trade association (in Calif.) for hard money lenders. (CaliforniaMortgageAssociation.com)
So, as rehabbers and investors become an increasingly important part of our borrower base, I'm very interested in the comments of investors, rehabbers and the general BP poster/readership as to how we can improve our perception in the marketplace.
Keeping in mind that we're just CALIFORNIA, we can still learn from the comments of Bill G., (who is not in Calif.) and the others who were kind enough to share.
Obviously, being a trade association, we consider ourselves the "white hat" guys and already believe we are doing things correctly, but we know even our practices can be greatly improved.
Here's what I got so far from this post, as far as what the investing/rehabbing world wants from us:
1) Transparency, an honest quote up front, that you can close with
2) REASONABLE pricing, the hml can make money, but not an excessive or unreasonable amount
3) Having upfront rules, so borrowers know what requirements have to be met, etc.
4) Clear policies on credit scores and qualifying
Comment: Although some hmls, like me, give little and in some cases, no consideration to credit scores, some do raise money from investors who set credit score minimums.
My opinion is hmls should have whatever policy they feel is best for credit scores, but disclose it up front, and clearly from the start.
Again, thank you all for helping me do my job. As Education Chair, we're resonsible for three or four major, two-day seminars on laws, practices, responsibilities and business models for hmls. There are many different types of lenders, borrowers and situations, so a resource like this really helps me.
Please keep the comments coming.
Joffrey Long
Granada Hills, CAP.S. My comments here are my own as a practitioner, and my statemtents or questions are not made as a representative of, or on behalf of the Caliornia Mortgage Association (CMA). (although I hold a position in that organization) CMA has not reviewed, endorsed or participated in this post.
- Commercial Landlord · Oshkosh, WI · Member since 2013 · 299 posts · 88 votes13y
He who has the gold makes the rules.
Lately there has been a disconnect from the world of bank interest to the world of hml. the gap is pretty wide and it can cause our industry in real estate investing to suffer. Bank loans at 6% and hard money starts at 10 to 12% depending. Its a pretty wide gap there that definitely could be narrowed with some work in this marketplace to determine exact credit risk. This is my thought and the fact its not been done already is surprising to me. Get a site that serves hml and investors like prosper.com and have both parties come together unregulated. Prosper is nice but the site is regulated and drives away a ton of hml because of that. Its also another credit score site which drives away poeple that want hard money not money based on fico. If people wanted money based on fico they would just go to the bank. So the key is to set up a site that services borrowers and lenders and puts the 2 together like craigslist puts sellers and buyers of goods together. That is the key to stream lining this industry. Just like the mortgage industry you can go online and shop loans quickly. Hard money sites are out there they just arent very good in my opinion and thats why hard money lenders can really charge crazy high rates because the market place has not been able to fill the gaps or affect efficiency to the market place of hard money lending like the stock market has to trading shares of companies. It will come eventually wait and see. Some one wil put a platform together or a site that does a good job of servicing the aspect of pairing hm to borrowers. This is my nugget for the day now all you IT professionals find some angel to put this site together so you can make some big money creating the next .com of this industry - Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes13y
Originally posted by William Bannister:
Its a pretty wide gap there that definitely could be narrowed with some work in this marketplace to determine exact credit risk.Hard money has less to do with credit risk and more to do with the risk of the underlying asset and the expertise of the borrower. Most HMLs are going to ensure that there is little risk in the value of the underlying asset (these days, at least) with low LTVs, so that leaves the other piece -- the expertise of the borrower to convert a loan into profit.
But, most of those who have expertise in this industry have lower-priced options than HML, so HMLs are going to be servicing less experienced (read: much more risky) borrowers. For that risk, they need to be compensated. It's no different than insurance -- if you're high-risk for needing care, you'll pay more.
Because the risk is MUCH greater with inexperienced investors, the cost of the money is MUCH greater.
Hard money sites are out there they just arent very good in my opinion and thats why hard money lenders can really charge crazy high rates because the market place has not been able to fill the gaps or affect efficiency to the market place of hard money lending like the stock market has to trading shares of companies.Personally, I disagree. I think the HML market (on a local level) is pretty efficient. That's why typical rates in Atlanta will be 15/5 and typical rates in California will be 12/2. There are efficiencies within local markets. You don't see 15/5 very often in CA (those lenders go out of business) and you don't see 12/2 very often in Atlanta, as those lenders don't want to leave money on the table. (Those are just examples...not necessarily the actual rates today, but the rates are uniform within each area).
It will come eventually wait and see. Some one wil put a platform together or a site that does a good job of servicing the aspect of pairing hm to borrowers. This is my nugget for the day now all you IT professionals find some angel to put this site together so you can make some big money creating the next .com of this industryThe hard part here is that lending is regulated by state. Putting together a national site that deals with regulation on a state-by-state basic is cumbersome and difficult.
- Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes13y
J Scott, wish I could vote for your post multiple times! Excellent perspective.
- SFR Investor · Dallas, TX · Member since 2011 · 604 posts · 243 votes13y
I have used hard money several times, then I found a mortgage broker that admitted, I could borrow from anyone, brother, mom, etc, and have the same effect as hard money, a loan was on the property so it was a refinance.
With people in retirement making 1-2% on money, find a friend and give them 1 point and 6 % interest,,they will love you for it, just make sure you can refinance out of it so they aren't 'holding the bag"
- Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes13y
Originally posted by J Scott:
But, most of those who have expertise in this industry have lower-priced options than HML, so HMLs are going to be servicing less experienced (read: much more risky) borrowers.This is true if price were the only issue. Everyone always tries to minimize their cost of money; no argument -- but there is also value in speed, reliability, and a high LTV.
Even experienced borrowers have lenders who flake out at the last minute or are just not setup to perform quickly on a regular basis. Others, who perhaps prefer to use their cash for the rehab, or have run dry, try to borrow as much as possible and can be LTV constrained by some lenders (i.e. what's the value of a lender who will only loan you 65% of what you need?).
Of those we know, especially those who do many deals at a time, most have a pool of lenders big and small and pecking order that depends on who can close the quickest, for the most amount of cash, the least cost, and probably several other criteria whose order of importance depends on the deal.
All lenders have their pros, cons, and quirks. These are not limited to cost or the size and experience of the borrower.
Jeff
- Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes13y
Great post Jeff S!
I'd gladly pay a bit more for the cost of my money to ratchet up my LTC on many deals I'm doing. Our margins are often 40% or so and thus borrowing using some canned underwriting criteria doesn't make very much sense. Local banks will lend up to 85% LTC if you search around. Why would I possibly pay a huge premium for "hard money" if they are demanding 80% LTC because they think it somehow is safer that way. I understand wanting folks to have skin in the game, but I have never understood why folks with the capacity to do otherwise borrow hard money at 65% LTC. Perhaps it is the deal types they're sourcing; not sure. Many of the more aggressive banks will loan on this product too though.
I consider sourcing money pretty much the highest value activity in running a real estate business. The money is in the money. Pretty much all of the other activities (sourcing deals, rehabbing, property management, etc.) can be hired out very inexpensively if you know how to organize and control money.
Things like the AAPL and such seem to be good steps for the hard money industry. A concerted effort to be less fragmented and more forthcoming with how deals are underwritten would be good steps. Small regionals are guilty of not disclosing much about their underwriting criteria often as well so this is not a HML-only problem. I suppose the idea is to be able to select the best loans from a batch, but stringing people along and failing to close seems to be a problem with the whole lending industry in general. I try to disclose as much up front as possible and let my lenders know if they flake out on me they will be fired FOR GOOD. There is nothing like some good old competition to combat this nonsense.
I think the best lenders understand that good quality relationships are where they make their money long term instead of having to hunt for good borrowers constantly.
- Commercial Landlord · Oshkosh, WI · Member since 2013 · 299 posts · 88 votes13y
Here is my idea a site that when you go into it as a lender or borrower you have a rating based on transactions to reduce fraud and problems.
You have variables you can type into your search just like ebay auctions things like the following. If i go in the site as a borrower I can click onto hml lenders in my state to run a free add for.
If im a lender I can click onto that state and look at the offerings and then maybe click on the city or maybe click on multi family or sfh loans and ect. You reduce search times and narrowing down what exactly you want to do. As a hard money lender you might post hard money for single family homes in florida. Or hm for multi family in calif or ect.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes13y
There is a problem with consistency, it comes at the expense of flexibility. Stating underwriting guidelines for public consumption is not a good thing.
1. It increases the possibility of fraud as some can attempt to overcome any hoop they see that you may look at. If you were to say that you look three months back for cash on hand and want 10% reserves, you can bet someone will "borrow" money from dad, drip it in the account in small increments and come see you three months later.
2. Stating a hard and fast LTV will keep you from making a good loan too.
3. If you give a list of documents you need for application before people come in, they won't come in. Not just with secondary loans but any loan, people have different sources of funds to verify and look at, telling a salaried professional to bring in 3 years tax returns will turn them off. You need to meet folks and then decide what docs are needed.
4. As soon as you say we loan 85% ltv on new construction, your customer will expect that ltv be made, lenders will look at experience of a builder very carefully as well as thier financial picture, someone like Bryan who may not have that track record will FIRE YOU forever if you tell the 75% is the best you can do.
5. Giving away your internal guidelines increases risks for discrimination claims, if they believe they meet all the check marks and you don't, what is the basis for the rejection if they are a minority?
6. It could very well be your investor said I'm not lending more than 10 miles from town, another may say no loans next to schools or within 1000 feet of any industry. Private investors can come up with some strange requirements, usually they got burned in the past and won't revisit anything like that property again. How would you spell out these issues of perhaps 20 investors for public consumption and be able to market the product? Not!
7. Underwriting is an art as much as it is a science, you may talk about the science side, it's very hard to discuss the art of it. I discriminated making loans, not in the way you are probably thinking as we talk about discrimination, I just didn't make loans to stupid people, while they had to be pretty stupid, believe me there are some. I had one idiot who wanted to fight me saying he was entitled to get a loan, .....right, that'sthe guy I'm going to work out collections with....
I always said we make common sence loans, that while I look at all aspects of lending, one or two issues may not keep us from making a loan. Underwriting the deal, the timing in the market, financials, costs, credit, property issues and other factors simply can't be put out there to the public.
You will find as a lender gets to know you better, they will open up more about what they will look for.
Lenders want repeat customers just like any other business. :)
- Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes13y
I wouldn't fire someone for only loaning 75% LTC on a particular deal Bill. I WOULD fire someone for claiming they only need 15% equity when I lay all the facts out and they string me along for weeks after asking for one thing after another after another after another. It is actually refreshing to get that experience out of the way up front so I can cross those yahoos off the list. FSB in Austin got this recently on a deal we worked on.
It is always amusing to me that lenders don't see the "relationship" as a two-way street. Their idea of a relationship is generally to get as much of the wallet as possible and reduce the risk in the loan. My idea of a relationship is that I allow them to lend money on the project and get good yields (I'm not very yield sensitive given our margins) if they provide good service and CLOSE LOANS where I disclose all pertinent details up front. I tell my lenders that I don't care if they don't want to loan. What I do care about is them claiming they want to loan and then flaking out on me 3 weeks later. This wastes my time and there are many others that I borrow from.
We engage one lender at a time instead of competing them against each other. If they fail to perform there is always another one. Debt suppliers are quite fungible and it is easy to locate others. It's not like they're performing some unique function. Lenders have been around for thousands of years and they should know what they want in short order instead of stringing things along.
There are some local lenders I'll bend over backwards to give business to because they are honest, reputable, and do what they say they will do. They also don't have unreasonable requests and don't string me along. They also do things some other moronic lenders don't do because of some stupid policies that provide no value for their investor's security interest. Stuff like closing before permits are issued and allowing us to do cash out on land give us a strategic advantage and allow us to decrease project duration; thus increasing AROI.
- Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes13y
Originally posted by Bill Gulley:
You will find as a lender gets to know you better, they will open up more about what they will look for.
Yeah, if the lender is still in business. What a great business model. There’s nothing like keeping your customer in the dark. I’m thinking of a number for your next deal, Bryan Hancock, can you guess what that is? Sorry, but I find this business model truly bizarre.
We know a handful of lenders who disclose nothing in advance and want to negotiate everything. How do you think that works for someone rummaging thru the MLS for deals at 3am?
Rather than be all lenders to all borrowers on all types of deals, it’s much easier to define who your lending market is and specify extremely tight criteria they understand in advance and can apply up front.
Whether internally defined or not, I don’t want anyone thinking I’m making it up on the fly. I’d much rather our borrower’s say, “This looks like a perfect deal for us and Jeff,” or not, than continuously renegotiating with them for more money.
How seemly, Bill.Yuck.
- Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes13y
Originally posted by Jeff S:
This is true if price were the only issue. Everyone always tries to minimize their cost of money; no argument -- but there is also value in speed, reliability, and a high LTV.For experienced investors, you should be able to get those benefits without having to pay higher HML rates...
In my experience, private lenders are much faster, more reliable and offer higher LTV than HML -- PLUS you get lower rates. My private lenders don't do appraisals (they trust me based on the relationship), so they can get the money to me in a couple days and many of them will lend 100% of purchase and rehab costs without even considering what the LTV is (they aren't experienced lenders, they are lending to me based on our relationship and my reputation).
I know a lot of investors like me who are in this position, so I'm quite certain I"m not unique. I have absolutely no issue with hard money lenders, but they are rarely the best choice for me or others I know with good amounts of experience.
Of course, that's just my experience...others' may vary...
- Carrollton, VA · Member since 2012 · 24 posts · 2 votes13y
Some companies have these fees which is a cost to do business,or a due diligence.It is only requested when the funds manager,or director has thoroughly reviewed the required documents,likes the plausibility of the project,has had an interview with the principle(s)on the project(s)and all are in agreement to press forward
- Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes13y
Originally posted by J Scott:
Originally posted by Jeff S:
This is true if price were the only issue. Everyone always tries to minimize their cost of money; no argument -- but there is also value in speed, reliability, and a high LTV.For experienced investors, you should be able to get those benefits without having to pay higher HML rates...
Perhaps, Jason. There was so much talk of cost, my point that you quoted was it’s not always about the money.
Jeff
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes13y
LOL, looks like a gang up on Bill thread, you guys missed the point.
The top reason applicants get jacked around is the lack of knowledge of the lender, especially if you're dealing with someone who doesn't write the check. They want the business so they get paid. I've seen brokers/HMLs hire car salesman as originators, not really someone with a finance background. A couple weeks of training and they walk the streets looking for business. They end up being a strawman or gofer, they ask for something and take it two days later to the man and he says get this, that goes on and on.
Bryan, I know what you mean and agree, nothing tics off an applicant than for them to get strung along with false hope.
Another issue is that they lie to get business saying they have the money when they don't, they have to chase around scrapping up funds. They do the run around to buy time.
J. Scott, I appraised small HML deals, residential and small commercial, I also closed the loan, it took generally 3 days for title and I could close within a week without jumping through my tail. Larger deals, new construction, MH parks, apts, and such would take longer, never would go over a month unless commercial bank lending was involved. If they were purchases, either I or #2 would go to the title company and close. Borrowers did not wait on me.
I was lucky to have been where I was having a university and great business college here I employed accounting and finance students, jrs and srs as well as grads. I also had ex-bank loan officers, one was doing commercial lending when I was in high school. The new ones began processing. If a HML can't read financial statements at a managerial level and run through tax returns, they need to learn IMO.
As I said, a new borrower needs to be looked at closely, it shouldn't take an hour to know exactly what is needed. Repeat customers could call in, stuff was on file, they'd drop off new docs and they got my verbal either on the phone or the next day....just let me know when you need to close.
- Hard Money Lender · Davidson, NC · Member since 2012 · 69 posts · 34 votes13y
A suggestion for improving the hml industry? I would hope that we as lenders would begin with this question in mind:
"If I make this deal on my terms as a lender, have I created a win-win situation?"
More specifically, does the borrower make a profit that is commiserate with the risk associated with the loan and the investment of their hard earned cash?
Of course there is risk and everyone can lose on a hard money loan (including the lender - trust me), but if going into the loan it is clear that there is not a profit in the deal for the borrower, the lending decision should be "no" in my opinion.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes13y
The HML industry is no different than the real estate brokerage industry when it comes to money. If you are an inexperienced new agent you will usually be on a 50/50 split. Over time as you become more successful you move elsewhere to get sometimes a 95/5 split. These types of agents are much more demanding as they have proven successful and have options (people wanting them). Eventually they might become a head broker and keep it all.
HML you are essentially dealing with many calls from new agents (new buyers) who want a loan. These deals are very high risk and you have to educate the buyer and pay special attention to the LTV and the deal. Even if the LTV is right their lack of experience can tie up your money, cause you not to churn for points, and at best you might not get any payments and break even or lose money.
I can see places like Cali where if the money is strung out in a climbing market the HML could come out ahead but also could be left holding the bag when the market hits a bubble and many loans drop in value at once.
I think the best HML's talk to you on the phone and share their experiences. I have called a few before on certain areas some buyers were inquiring about. There response was they shared that they do not loan there because of X,Y,Z reason. This is valuable info as you as an out of state investor or local learn why someone will not go there and it might be info you hadn't even thought about or considered.
15/5 rates I would consider for the very inexperienced. I have sources at way better terms than that but as J said is personal relationships developed over time. If you take money from someone they key is to demonstrate your plan. Have multiple exits planned to show limited risk to your lenders money. Saying I plan to do this and then do this and that's pretty much it should set off red flags everywhere. Especially if you are a private lender lending at less rates. One of the downsides to private investors is limited capital as once they run out of money you have to go elsewhere. Sometimes this isn't true as they know someone that has a much greater net worth than themselves they can vouch for you for.
Example you know someone that is liquid 2 million but they also know somebody with liquid that has 12 million. By growing that trusted circle you do not have to create as many small party contacts. HML's have to decide what they want the majority of their business model to be. Do you want higher rates and more risk from new and inexperienced buyers or do you want lower rates and less risk from investors with a track record?? An HML has to figure out business percentages they want of one or each. Experienced investors are simply not going to pay those top tier interest rates and points when they are proven. If that's your business model as an HML you will fail.
One interesting thing as an HML is if you specialize in a certain niche. Say you are a multifamily HML only or Hotels etc. You can offer expertise and lend out money in a more specialized market where you are loaning them more specialized funding and money.
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