5 Tips To Help Secure A Hard Money Loan
By Paul Esajian on November 10, 2017
There are many ways to finance a real estate deal. Between traditional lender financing, home equity lines of credit, cash on hand, private money and hard money there is an option for every investor and every situation. Over the past few years there has been a dramatic influx of hard money lenders. Regardless of how you may have financed deals in the past it is a good idea to align yourself with a hard money lender.
As much as a hard money lender may want new business they don’t simply give money away. You need to show that you know what you are doing and have a clear vision for how you will handle the money. A good relationship with a hard money lender allows you to get more offers accepted, close more deals and greatly improve your bottom line. Here are five tips to help secure a hard money loan.
- Sell yourself. Like any new relationship you are trying to build it is important to sell yourself. Knowledge of numbers and formulas are great but if there isn’t a good fit there are other people they can work with. As cliché as it sounds the best way of doing this is to be yourself. You can’t be expected to have all the answers or to know everything about a certain market. This doesn’t mean you shouldn’t do your homework but if there is something you don’t know it is ok to say so. Instead of making a long, rambling answer they can see right through they will appreciate your sincerity. Explain why you want capital, what you would do with it and how you can benefit them. The positivity in your voice and confidence in your approach will be felt if you are sincere. If you can sell yourself everything else is easy.
- Understand the process. If you are looking for hard money it is important to understand how the process works. The lender will give you access to capital typically in a dedicated business account. The numbers are discussed prior to any transactions and once deposited you can move forward with an offer. Once the offer is accepted you will draw the funds and start the project. Every hard money lender is slightly different as far as what fees they have, the interest rate they offer and how they handle the money. You don’t need to know all the inner workings of their business, but you should have a good idea of how the process works. You should consider your meeting almost like a job interview. They will pepper you with questions to gauge your knowledge and how well you handle pressure. As we mentioned, you don’t need to be an expert in every area, but you need to have a good idea of who does what and when they do it. The better you understand the process the more confident they will be with you and the more likely you can form a relationship.
- Numbers. Numbers change from deal to deal but formulas remain consistent. There are a handful of formulas that are used on almost every deal. These formulas determine the strength of the deal and just how attractive it is to an investor. The goal for any real estate investor is to net a profit. As obvious as this seems it is often forgotten when you are pursuing a property. A hard money lender needs to net a certain percentage to make the deal worth it. They are going to expose their capital to risk and need to feel confident they are going to get a return on their investment. The numbers are often much tighter than you would anticipate. You should have a good grasp on every formula associated with the rehab process and how to quickly evaluate a deal.
- Benefit. Every hard money lender wants to know how a relationship will benefit their business. Even though you may be able to help them earn money it is not enough to get started. You need to be able to not only find deals but be easy to work with. There are dozens of investors looking for money every week. Good hard money lenders pick and choose who they work with based on personality, convenience and obviously return. If you are the type of person who is going to call five times a day with questions the relationship may be worth more trouble than the return. If you are going to only provide subpar deals in undesirable markets, there isn’t much in it for them. You need to clearly define the benefit of working with you. Whatever it is you do well or do better than your competition you need to make that point clear during your meeting.
- Ask questions. As much as the lender is conducting an interview you are also doing the same. You shouldn’t just sit there and answer questions without firing a few back at them. Ask about fees, rates, terms and expected returns. The truth is that there are more hard money lenders around than ever before. If you don’t like their answers, there are other people to work with. By asking questions not only will you find out about them, but they will know that you are serious about the process.
Every investor should have at least one hard money lender they can work with in the right situation. Find that lender isn’t easy but is not nearly as difficult as it was in years past.