I have a considerable amount of money and I would like to learn how to get into the business of Hard Money Lending, any suggestions to start?
What areas do you want to lend in?
Keith
Yes, my first suggestion would be not to lend what you cannot afford to lose. You’d be surprised at how quickly your money will go out the door once you tell people what you do. What you think is a “considerable” amount now may surprise you once you start lending it out.
Secondly, associate yourself with others that have experience in the lending business and can advise you on what may or may not be a good project to lend on. Also, have a very good attorney to work with. One that you trust implicitly and can help you get your money back if/when a loan defaults.
There are enough people out there who will gladly borrow your money, but you must make sure that you have people around you whom you can trust to make sure that you get it back within your lending timeframes.
Ever have a relative ask you for money? If yes, then that is probably what you will have to relate your experience to if you become a HML. You wil also have to make sure that you do not get emotionally tied into the deal. You may think that lending 40% loan to value on a vacant piece of land is a no-brainer, but try getting someone to buy you out of that mess when the original borrower defaults on your loan, declares bankruptcy and keeps you from getting your money back after 12 months or more.
And it gets worse, if you do not know your business you can lose your shirt to people who will lie on their application and, even if they don’t, won’t plan their exit strategy properly and can lose your money and you now own a 50% completed home in the worst nieghborhood in town.
You need to do your own due diligence and make sure that you control everything in the process. Start by lending your money only in your own area so that you will know where your money is being spent. Then if the project goes bad, you are right there to babysit it until the project is completed. Talk to local realtors, get involved in a real estate investment club where you can talk to others in your peer group about different projects and see what they have done.
And always remember, if the banks don’t lend on it, and no one else will lend on it, including other HML’s, you have to ask yourself why…I know many people who lend out their own money and they do very well, but they have been investing for years, or have owned many properties, or have a lot of great contacts, but their bottom line is risk/reward…good luck.
marc
You can find hard money lenders that will do it for you. They usually keep the points and 1/2% of the return. The rest of the return is yours. That may not be a bad way to get into it. Then once you get fully comfortable start your own company.