5 Tips To Help Secure Funds From A Hard Money Lender
By Paul Esajian on May 10, 2017
In the real estate world, you never know when you will meet someone that changes your business. Regardless if you are looking for your first deal or a seasoned investor it is a good idea to have as many financing options as possible. In the past, lender financing was the main source of all purchase transactions. Over the years, hard money lenders have become more prevalent and in some cases the preferred option. Meeting a hard money lender is not enough to secure financing. You need to sell yourself and your business in much the same way as you would with any new contact you meet. The right hard money lender can become a go to financing source that opens doors in the business you did not know existed. Here are five tips to help secure hard money funds.
- Lender Due Diligence. The perception of hard money lenders has changed dramatically over the years. Last decade if you needed quick funds to stop a foreclosure or bail you out of a bad situation you reached out to a local hard money lender. These lenders usually consisted of one individual who had access to capital and would pick and choose only the best deals. Today hard money lenders have websites and business cards and some even have commercials. The stigma with using these lenders is long gone. To get the meeting off to a great start you should do your homework on who you are talking to. Find out where they typically invest and if you know anyone they work with. Go to their website and spend time looking at any previous deals listed as well as any other pertinent information you can find. All it takes is one piece of information from their website to immediately change the way they think of you and increase your chances of working together.
- Know What You Want. Prior to meeting with a hard money lender you should have some idea of what you want. Obviously, the goal is to secure financing you can use to purchase properties. However, you need to be clear on what markets you would entertain, the specific property type and even the price points. The clearer you are in your vision the easier it is to get what you want. There are many investors who meet with hard money lenders and have no idea how to move forward. They may know the end goal but aren’t clear on the process. It is important to remember that you are not only selling your business but you are also selling yourself. If they commit the lender is trusting you with tens of thousands of dollars. They are not going to move forward with someone who doesn’t take the time to map out a game plan or know exactly what they want.
- Review All Numbers. As important as a good personality is it is not enough to secure financing. As anyone in the business will tell you real estate is largely about numbers. The numbers dictate the strength of a deal and will often guide you whether or not to move forward. Prior to your meeting you need to take the time to break down all the numbers involved in a prospective deal. It is a good idea to provide a pro forma so you can further highlight what you plan on doing with the money. Take a deal you may have closed or one you want to work on and go through all the numbers step by step. The two most important pieces will be your rate or return and your estimated budget. A good lender will ask about your team and how likely you are to hit your projections. You need to know where everything on your estimate comes from and what changes can have the biggest impact. Lending is a numbers game and the better you know the numbers the more likely you will find a lending partner.
- Understand Worst Case Scenarios. One of the goals of any lender is to mitigate their risk. This is the case whether you are working with a large lender or a small local hard money lender. The reality is that not every deal will be a home run. There will be times when things change mid-deal and you will be forced to scramble just to scratch a small profit. A hard money lender needs to know that you can handle everything that comes your way. Instead of waiting for the lender to bring it up you should address what you would do in every scenario. This doesn’t mean you are negative rather you are showing just how prepared you are.
- Ask Questions. Meeting with a hard money lender is very like a job interview. The lender will fire questions at you for as long as it takes to make a decision about you. When they are done you will be given the opportunity to turn the tables and ask questions to them. Instead of biting your tongue you need to ask any pressing questions you may have. If terms, fees and closing costs were not discussed now is the time to ask. Not only does this provide valuable information but it also shows that you may have other options out there if the terms are not agreeable. It also shows that you know the business and want to learn about who you may be working with.
Hard money financing can help close more deals and earn more on every deal. In fact, the right hard money lender can completely change your entire business.