Hard Money Lender

5 Replies

Hi All,

My realtor and I have worked together on multiple properties for multiple strategies.  I trust him.  Today he called and asked if I would be interested in being a "hard money lender."   I believe that is the proper term?  He has a client in need of one, knows our situation and asked if we would be interested. 

I have no idea.

Again, I trust  my realtor, don't know about money lending (as me being the lender), nor do I know the potential borrower.  I have read some posts  on BP, feel more knowledgeable than I did a few hours ago.

What are the questions I need to ask?

What are the things I need to look into?

Any and all BP advice would be greatly appreciated.   Thanks in advance. 

Really, you would be more of a private money lender, since you're just making a direct loan to someone else.

I would want to see a standard 1003 loan application and a full credit report.  That can be challenging for an individual to get.  I've always done these loans via a broker, so they can get the credit report.  I also want bank statements showing some cash in the bank.

I want an appraisal paid for by the borrower done by an appraiser I choose with no input from the borrower or agent.

I would not go more than 70% of ARV.

If there is rehab money involved, I'm holding it in escrow and only handing over after inspecting the work.

If required, I want permits and I want city inspector sign offs before handing over rehab money.

If the borrower has to kick in some money I want it in at the initial closing.

I want to be in first position.  I want placing any additional liens on the property to be a default condition.  That is, if the borrower puts a second mortgage or contractor lien on the property, the loan is in default and I start a foreclosure.

I want monthly payments.

Thanks Jon, good stuff, helpful.  I appreciate you knowledge and insight. 

Hi Jon,  this deal is coming together.  The nutshell is we put up $180,000 for a multiple investor project.   We get $10,000 back after 90 days.   What do you think?   Does this seem like normal market numbers to you? 

Thanks for your advice. 

@Gary Schmalz A $10K return on a $180K investment for three months amounts to 22% interest.  Have you verified with an attorney that's acceptable under relevant state laws?

What happens if they can't repay you after three months?

Are you applying everything from my first reply?  EVERYTHING?