Why when people think hard money they thinks bail out?

Question

Being a Commercial/ Hard money lender has proven to have had its share of difficult times. Like many people one of my biggest objections has been educating clients on what is acceptable in hard money. Yes hard money has been traditionally had an image of taking care of those "hard to do loans" but their is also a boundary we face. We also can't save from deliverance. We look hard for the client who out of the box financing but has personal and professional obligations somewhat together and is not looking for a miracle.

My question-How do you personally overcome this objection or teach your referral partners and clients to come to you with creative files but not miracles? Your direction is valued here... Please leave comments

My question-How do you personally overcome this objection or teach your referral partners and clients to come to you with creative files but not miracles?  Your direction is valued here... Please leave comments

Account Closed · Answer

I think every business casts a wide net to attract customers and then weeds out the ones who cant qualify.Look at the car business they must have 5 or 6 loan tiers . You are not going to close a 100% of your contacts that why a wide net is necessary.Educating clients is just the process of doing business.

Account Closed · Answer

Train your brokers on exactly what you are looking for and you will get higher quality deals.

Mike H. · Answer

As an end borrower of hard money, my advice would be to do what I think Anthony is recommending.  Market to a different borrower.

I would target investors that are successfully investing today and are either using hard money already OR that could be educated as to the value of using hard money.

But I agree, you want to get out of having people come to you because they have no way to get any other financing and are reaching.

Part of it too is maybe offering better terms to get those kinds of investors.My current lender is doing 100% of the purchase plus rehab. I've done over 20+ deals with this lender including 18 this year alone.

I personally do it because it works for my model and lets me spread out my capital. After i'm done, I'm able to do rate and term refi's which local banks are much more open to doing as compared to cash out refi's.

And I've actually brought a couple of other investor friends to my lender and my previous lender.

The key is that the terms have to make sense for an investor to incorporate into their model. And if they do, then you can grow your borrowers list with investors that bring you repeat business.

Karen Margrave · Answer

@Marie Fleming This has been moved out of Investor Deal Diaries. Please read the post at the top of IDD before posting there, it's for ongoing new construction, rehabs, remodels, etc. Thank you.

Jeff S. · Answer

A long time ago, @Marie Fleming, over the course of many months, I had one broker call me often with one hard luck story after another about potential borrowers he wanted us to loan to. I always had the sense I was the last person on his call-list, but it was an annoyance that actually helped us define our business model. First, I had to realize that it wasn't him, it was us.  We weren't being clear on what we actually do and what we look for in a borrower.  The other reason was, frankly, we were making it up as we went.

In an effort to cast as wide a net, make as many contacts, and capture as much business as possible, we were not 100% clear who we loan to, why, and under what criteria.  This is actually a real reason why many businesses with a good product fail – they are afraid to focus.

The solution, in our case, was to simply create a written list addressing the same questions we are always asked by potential borrowers, plus answers to questions borrowers never think to ask in advance (this educates them and also comprises most of the list).  Then, crossing off the things we either didn't want do or couldn't do.  That was painful.

When a potential borrower, agent, or broker now approaches us, we can have a short top-level conversation about what we do and our terms, but we always follow this up with our not-so-short email that we know responds to 99.9% of their other questions+. We've received profuse thanks for this from borrowers frustrated from dealing with inarticulate lenders and convoluted criteria.  In truth, I really think this clarity was more helpful to us.

Obviously, you could have another approach, but you said you recognize you must educate your clients, who it appears do not to fully understand what you do. That is, there is a fine line between your words, "creative files but not miracles."  Figure out what you can, can't, or won't help others with in writing, and communicate that to them in great detail, however it makes sense.  If you make your clients figure it out, they will go elsewhere. I suspect you're seeing that.

The confused mind always says, "No."  Our (and your?) goal is to ensure our clients always know what we do always, and what they must do. No making things up as we go anymore and no more trying to be all things to all people.  It kills me to turn business away, but we've also never been busier.

Good luck, Marie.