How to become a Hard Money lender?
Engineer · Wichita, KS · Member since 2012 · 396 posts · 36 votes
How to become a Hard Money lender?
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Specialist · Dallas, TX · Member since 2009 · 20 posts · 95 votes
12yIf anyone want info on this feel free to contact me. I have done about 600 loans over the last 5 years with 2 foreclosures and no losses. I'm happy to help you stay out of trouble and getting things started. Shoot me an email.
44 Replies
- Investor · Clarksville, IN · Member since 2012 · 226 posts · 96 votes11y
Originally posted by @Gabe S.:
Originally posted by @Sam B.:
@Kurt Carlton I'd be interested in hearing your story, how you got started, risks, lessons learned.
Kurt is likely part of the LifeStyles Unlimited network. That's how he runs a good (performing) ship so to speak. I dont know how else to describe it so the best I can come up to get the point across is that LSU has a lot of built-in self-policing among investors, vendors, lenders, etc. Think of it as BiggerPockets-plus with serious policing powers to boot. Perhaps a poor way to communicate it to those who arent aware of LSU but it's the best I way I can simply explain it.
To give my 2cents on the original post, and probably what Kurt is subtly getting at, is that instead of becoming your own hard money lender with all the headaches/etc that come with it, you should probably find a reputable hard money lender and piggyback on them. If you want to stay passive, frankly, it's not a bad way to go. Good luck.
Gabe I see you are back to toot the Lifestyles Unlimited horn again, you still have not answered your original post, which also was about Lifestyles Unlimited. You seem have a vast knowledge of that group, please elaborate.
- Vienna, VA · Member since 2015 · 41 posts · 15 votes11y
Donald.
I am not defending them or anyone. It's up to everyone to do their due diligence/etc to figure what is/is not a good source so to speak. I am not all that active on BP as you can see by the fact that this is like my 3rd ever post.
I thought my other post was pretty clear so not sure what else to say. You and everyone else are obviously free to choose who they like, dont like, want to, dont want to do business with or be associated with.
All I am saying is that what I like about them (everyone is entitled to agree/disagree) is that with the volume of members that the vendors have access to is substantial. If the vendor starts getting a bad rep, word spreads quickly. I have heard of cares where LS has stepped in and booted vendors because of it. That's where my self policing comes from. Are all vendors in there great? Do they 100% of the time over deliver to their customers? Not likely. But given that it's sort of like an Angies List for members, at least there is a better chance of being treated appropriately by the vendor. That's it.
No different than some times someone has a bad experience instance at Disneyworld for some reason. Does that mean Disneyworld is a horrible company and no one should go there, ever? I say no. But everyone has the right to their opinion about that.
You seem to have a big problem with them for some reason. Curious why that is. Seriously, I am genuinely curious.
- Residential Real Estate Agent · Broomfield, CO · Member since 2013 · 390 posts · 125 votes10y
Originally posted by @Will Barnard:
A bit of mis-information here in my opinion. Forst off, you DO need a broker if you are going to lend, otherwise, you are likely in violation of state usury laws and other potential Federal laws.
I believe that this is specific to California. Some other states may be the same, but not all.
- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes10y
@Terry Portier you got good info.
1. Does your state allow private lending for your personal benefit without a license? Lending for others almost always requires a license.
2. You must comply with Dodd-Frank.Find a good attorney that knows the laws. In the alternative, go to a title company. I got hung on one of the first deals I did. The attorney drafted a mortgage note that was usurious. It cost me about 7 months of lost interest. I did collect the principal and some of the interest. Why didn't this attorney warn me the loan was usurious? I don't know, but he never got more business from me and I was doing quite a few loans and he was making good money from me as a client!
Once you determine if you need a license and are sure you are DF compliant, your other concern will be the quality of collateral and how much you are willing to lend against it. Give too much, end up foreclosing, and it is possible the property sells for less than you loaned. That happened quite a bit during the RE meltdown.
I have been doing private loans since 2012. I am very happy with the results and encourage anyone to pursue this as another form of income stream. I use a title company for all transactions, require the borrower to pay all fees, only accept 1st position, and keep my LTV around 60% or less. Doing HML inside of a retirement vehicle is a great way to grow your funds tax deferred.
- Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes10y
Originally posted by @Adrian Tilley:
Originally posted by @Will Barnard:
A bit of mis-information here in my opinion. Forst off, you DO need a broker if you are going to lend, otherwise, you are likely in violation of state usury laws and other potential Federal laws.
I believe that this is specific to California. Some other states may be the same, but not all.
Adrian, not true at all. In fact, all 50 states have some sort of usury law, with some (CA for example) being more strict than others. New Jersey as another example has very loose usury laws and several states usury laws are very vague leaving some to interpretation which can also get you in trouble. I tend to error on the side of caution when laws are involved so do check out the usury laws in the state in which the investment is taking place as those are the applicable laws.
- Residential Real Estate Agent · Broomfield, CO · Member since 2013 · 390 posts · 125 votes10y
Originally posted by @Will Barnard:
Originally posted by @Adrian Tilley:
Originally posted by @Will Barnard:
A bit of mis-information here in my opinion. Forst off, you DO need a broker if you are going to lend, otherwise, you are likely in violation of state usury laws and other potential Federal laws.
I believe that this is specific to California. Some other states may be the same, but not all.
Adrian, not true at all. In fact, all 50 states have some sort of usury law, with some (CA for example) being more strict than others. New Jersey as another example has very loose usury laws and several states usury laws are very vague leaving some to interpretation which can also get you in trouble. I tend to error on the side of caution when laws are involved so do check out the usury laws in the state in which the investment is taking place as those are the applicable laws.
I'm sure there are lending laws in every state, but I believe here in Colorado at least you do not need a broker to lend. At most you need an attorney to make sure the paperwork is done right.
- Investor · Colorado Springs, CO · Member since 2015 · 15 posts · 3 votes10y
Also, if you are operating as a LLC, the State of your incorporation may not allow your LLC make lending a business purpose of your LLC. Something to check out in your operating agreement.
- Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes10y
Originally posted by @Adrian Tilley:
Originally posted by @Will Barnard:
Originally posted by @Adrian Tilley:
Originally posted by @Will Barnard:
A bit of mis-information here in my opinion. Forst off, you DO need a broker if you are going to lend, otherwise, you are likely in violation of state usury laws and other potential Federal laws.
I believe that this is specific to California. Some other states may be the same, but not all.
Adrian, not true at all. In fact, all 50 states have some sort of usury law, with some (CA for example) being more strict than others. New Jersey as another example has very loose usury laws and several states usury laws are very vague leaving some to interpretation which can also get you in trouble. I tend to error on the side of caution when laws are involved so do check out the usury laws in the state in which the investment is taking place as those are the applicable laws.
I'm sure there are lending laws in every state, but I believe here in Colorado at least you do not need a broker to lend. At most you need an attorney to make sure the paperwork is done right.
You don't need a broker in CA to lend either UNLESS you plan to charge in excess of the usury limits. Since we are discussing legal issues here Adrian, it is important that incorrect information or simple opinions are not spread around. That could cause the naive newbie to get into trouble, something many of us here try to prevent.
- Residential Real Estate Agent · Broomfield, CO · Member since 2013 · 390 posts · 125 votes10y
Originally posted by @Will Barnard:
Originally posted by @Adrian Tilley:
Originally posted by @Will Barnard:
Originally posted by @Adrian Tilley:
Originally posted by @Will Barnard:
A bit of mis-information here in my opinion. Forst off, you DO need a broker if you are going to lend, otherwise, you are likely in violation of state usury laws and other potential Federal laws.
I believe that this is specific to California. Some other states may be the same, but not all.
Adrian, not true at all. In fact, all 50 states have some sort of usury law, with some (CA for example) being more strict than others. New Jersey as another example has very loose usury laws and several states usury laws are very vague leaving some to interpretation which can also get you in trouble. I tend to error on the side of caution when laws are involved so do check out the usury laws in the state in which the investment is taking place as those are the applicable laws.
I'm sure there are lending laws in every state, but I believe here in Colorado at least you do not need a broker to lend. At most you need an attorney to make sure the paperwork is done right.
You don't need a broker in CA to lend either UNLESS you plan to charge in excess of the usury limits. Since we are discussing legal issues here Adrian, it is important that incorrect information or simple opinions are not spread around. That could cause the naive newbie to get into trouble, something many of us here try to prevent.
I absolutely agree Will. I think newbies should get competent advice. If you are thinking about doing hard money lending, I would recommend getting a competent attorney to draw up the paperwork. I'm representing several people right now who tried to DIY their business contracts, and because they didn't know what they were doing they are out tens of thousands. I was simply responding to your original post which stated that you must have an agent to lend (which you stated in your last post isn't apparently always true). I wasn't even commenting on California, which I know nothing about, but stating that here in CO you don't need an agent to lend.
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Adrian Tilley I believe there is 17 states that follow dodd frank and safe act to a T IE any loan on any 1 to 4 requires an NMLS mortgage broker to originate it. The rest of the states if they are business purpose loans and described as such in the debt instruments are exempt from licensing. Not sure what you mean by Agent.
Many lawyers are not up to speed on licensing issues. So buyer beware there.
@Will Barnard is correct to lending money in CA your either need to be CA broker , NMLS licensed, or consumer credit.
What I like to do when I am looking at a new market and have a question is to simply google hard money lenders in that state.. at the bottom of their first page you will either see their NMLS disclosure or you will not... if they have it your pretty certain its required if they don't pretty certain its not.
For the person who spoke about no usary or very little in Nevada that may be correct but you need a license to lend there an Nevada is VERY strict on this.. if they get wind or your turned in you will hear from the regulators
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes10y
Okay, A "Private Lender" is someone you know personally, you may be related and family loans are exempt from all state and federal regulations, if I want to loan money to my son, it's whatever the family wants to do and also exempt from Dodd-Frank (DF). Laws are applicable to private loans made outside of family arrangements. Usually, "family" is considered the first tier, mother, father, sister, brother, daughter, son, your spouse, grandparents, all being in a direct linage, blood or marriage, your great uncle by marriage isn't in this group.
Private lenders must fund with their own money, not other people's money, they must have a personal relationship before funding, like your barber. Generally depending on the size of a transaction and the nature, a past business relationship needs to have existed and the lender does not make any other loans as a business venture. One loan is not a business venture in any state from a friend.
Owner occupied, meaning consumer loans, DF applies to private loans as well as institutional loans. Commercial loans are exempt from DF, but not entirely, such as a construction loan that roles over to an end loan on a residence made by the owner. Example: Fred gives Andy a construction loan and builds a house. Andy sells to Tom allowing Tom to purchase Sub-To, basically wrapping the commercial loan. The loan then has a consumer purpose and that transaction is covered under DF.
Institutional loans, we all think of banks, but institutional also takes in any loan made as a business purpose, an HML is in the business of lending, that requires a license or registration. If you have any business entity that declares any purpose of its formation is to lend or purchase mortgages or deal in mortgages, that is a business purpose, that means a license. If anyone advertises to seek borrowers, they re in the business! They need a license.
The type of license varies as to the types of loans being made by a business, home loans, commercial loans, loans on chattel contracts, loans secured or unsecured. Your pay-day lender has a license, so will a pawn broker, car dealer, or a venture capital firm.
Registration in some states can be pretty simple, fill out the form, basically it says "hey, state finance department, I'm providing loans with my money on commercial transactions" they just want to know who you are, where you are and what you're doing. Go into using investor money or borrowing from other to make loans, you're a broker, much bigger deal in compliance.
If you own a candy store as an LLC and you make a loan to your buddy, that isn't an institutional loan just because funds came from a business. But, if you turn it into Abe's Candy and Loan, then you're in the business of lending.
CA has brokerage exemptions, for real estate brokers, DF exempts attorneys from creating owner occupied residential loans when the loan is compliant and so long as they are providing an auxiliary service in connection with their practice, your attorney places your assets in a trust for estate planning and creates note selling a home. Attorneys are not mortgage originators, but an originator could be an attorney as well. Kansas has pretty easy brokerage licensing, other states require license, bonds, insurance, net worth and a clean record.....it varies.
There are many guys on the street corner who are not licensed or registered claiming they are private lenders, if they don't meet the definition, they are simply illegal lenders.
Being in the business of something also takes into consideration the intent of the actor, the amount made, the frequency of transactions, their other sources of income or revenue, just as the IRS sees your business activities.
You can't just decide to go out and start lending money and call yourself something that keeps you from lending compliance. If you're not in compliance, you won't be lending long considering the fines that can be imposed, you'll be broke! :)
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Bill Gulley our state Orygun finally came out with a ruling... no more than 2 private loans and 3 in possession in any one year.. you can do that much business with anyone and be exempt. After that its NM LS time !!! state license ect. .. and your correct the bigger private guys in this state pretty much uniformly got cease and desists the state went looking found them shut them down.
- Montgomery, AL · Member since 2015 · 109 posts · 11 votes10y
Being a private hard money lender can be exciting and rewarding. Making a large return on your investment can be enticing. In order to become a hard money lender, you will need to do the following:
Access to Money
High Risk and High Reward
Establish a Business
Get the Word Out
- Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes10y
Originally posted by @Max Matrin:
Being a private hard money lender can be exciting and rewarding. Making a large return on your investment can be enticing. In order to become a hard money lender, you will need to do the following:
Access to Money
High Risk and High Reward
Establish a Business
Get the Word Out
You have combined the terms "private" and "Hard money" above. For clarity's sake, everyone should know that they are two DIFFERENT things. A private money lender is one that uses their own cash and lends to people they know. They are not publically advertising, they are not using OPM, and they are typically not licensed loan brokers doing this for a living. A hard money lender is just the opposite, doing all of those things mentioned that a PM lender does not.
Secondly, I disagree with the high risk, high reward comment. You do not need to take on high risks to be a private or guard money lender. So long as you lend to qualified borrowers at an LTV THAT IS SAFE, YOU CAN OBTAIN DOUBLE DIGITVRETURNS (high returns) without taking on much risk at all!
- Milton, FL · Member since 2016 · 6 posts · 3 votes10y
Originally posted by @Kurt Carlton:
If anyone want info on this feel free to contact me. I have done about 600 loans over the last 5 years with 2 foreclosures and no losses. I'm happy to help you stay out of trouble and getting things started. Shoot me an email.
Kurt,
I know this is an old post, but I'd like to get your expertise on being a HML if you're still offering it. Thanks.
-Jake
- Rental Property Investor · Highland, IN · Member since 2016 · 31 posts · 23 votes10yKurt Carlton I would love some information too while I do some research. Thanks everyone.
- Montclair, NJ · Member since 2016 · 5 posts · 0 votes10yRemember to have local counsel for each state you are licensed in. My firm only does New York and New Jersey but there are significant differences between these 2 neighboring states so image the differences between New York and Texas.
- Member since 2018 · 8 posts · 0 votes7y
Is there any "generally acceptable" way to structure a HMLoan to avoid time costly foreclosures to the HML? Deed in trust, (Lender is trustee)? Deed for contract? I realize there are very few borrowers who would part with title, but it seems like there could be a creative way to grant title during the loan term?
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