Investors aren’t sure what Hard Money Lenders are about
There are different levels of investors. From the Beginner to the seasoned veteran the levels of competency vary. What seems to be a trend in many isn’t so much the competency, but the lack of knowledge as to how a Private Money Lender is set up to help you increase your wealth.
Think about this, when you run your numbers, whether taught as a student of one of the Real Estate Training Companies, or a seasoned vet that wants to just keep plugging away, your numbers should produce either a CAP rate or ROI that is satisfactory to you bringing in a net profit that will satisfy your goals. What we’ve noticed is when they come to us they have tendency to just offer what they think any Private or Hard Money Lender would be foolish not to take. This can seriously impede your ability as an investor to get the funding you need quickly to close your deal and get you moving towards profitability.
Regardless of what you think of Hard Money Lenders
There is a bit of a stigma around our industry as a group of people that like to get as much as we can not leaving you, the investor, with much, if anything for a net profit. Contrary to this seemingly popular belief, Hard Money Lenders are not out to get your profit. Realize however, that they didn’t get into lending to do what you do which is fix and flip, or buy and hold. They have a different view which entails looking at making money on money they already have. They look at the ROI on money lent out to borrowers.
In essence, they become the bank.
Most banks are refusing to lend on investment properties and are making hard to acquire investment funds if they do. The good thing about Hard Money Lenders is they have the tendency to be more relaxed on their lending parameters and requirements to lend.
Hard Money Lenders are not banks
Huge difference between these two are obviously the cost of money. Funny how we don’t see the understanding that when active investors are looking to borrow money they miss the fact that this money is going to be decidedly more expensive. Hard Money Lenders are not in the business of making a small return on their money. They are looking to increase their wealth just the same as you. They happen to do it lending money to Active Investors.
Remember that when you are looking for a Hard Money Lender that you have choices, and you can negotiate with them on the price of their money. Just remember, if you don’t have the track record with them and your credit isn’t exactly within good parameters, you may have a hard time negotiating for a lesser rate and/or points.
You can find other Hard Money Lenders out there, but be aware that when they start saying 1 point, or 100% ARV, there is usually more that they are going to want to participate. (Click here to see our article on “Beware 100% LTV lenders)
Run your numbers understanding that you are going to be gaining a partner that is a Hard Money Lender. Be liberal with your cost and conservative with your profits. It will keep you from the sellers that say, “This is the best deal to come across your desk EVER!”