Hey,
I was reading some posts and just got to wondering. The returns look great, but there must be pretty high risks involved. Are there resources that show the steps to being a hard money lender, and the things that you need to know to reduce the risk? I am interested in researching this to see if it could fit into my investment portfolio.
Thanks,
DB
I have also looked into starting a HM company. However, right at the time of execution, I had to go out of country for a while. At which point my other investors lost interest and the plans fell apart. What is involved is first contacting whatever the state financial licensing board is called for you. They will tell you what type of bonds, licensing, capital, management, etc. you’ll need based on your business plan. You should have a well written business plan, not just a couple of notes taken on a napkin. There is much less red tape (a$$ kissing) for HMLs than starting a bank. You probably won’t need a state or federal charter, you will have much more room to conduct business the way you want rather than the way the state wants.
The risks of HM for rehabs and other short term investments are hedged by the small LTVs. There is still plenty of room you to finish what an incompetent investor started without losing money in the event of a default. It’s really a good thing to consider if you’ve got some money you need to put to work.
I’m in Montana, so there isn’t maybe enough business here, I suppose I would need to contact each state that I want to be licensed in. Can you elaborate on Bonds, Capital, and Management? What would they likely be looking for? I don’t have an awful lot of cash, but I have a lot of equity in my business that could be tapped. ( a farmer with lots of acres paid off ).
Once licensed, advertise and look at deals to decide if they are good enough.
You would have to get your own appraisal of ARV, to be sure that there is margin in it to take over the project and still make money. How about the contracts and forms that would secure your position in the property if there is a default? I suppose this would be a question for a real estate attorney? or are there other resources that help answer these question?
Danny- Where did you go to get these answers when you were looking into it.
DB
Also, what would the threshold be to start into this. $25,000 or more like millions?
Go to your state licensing agency (the link above). They will tell you the specific requirements for starting a HM company. It’s not as easy as just getting business cards printed that says your a HML. If you decided to be a private investor vs. a financial institution, getting some business cards printed might be the extent of your red tape.
It might be considered a conflict of interest to have your own appraiser on staff to determine ARVs. You may be construed as a predatory lender who intentionally sabotages projects so you can pick them up for nothing and resell them. ARVs will be determined at the borrowers expense via a third party appraiser.
I went to my state licensing agency to give me guidelines on what I needed. Even a few million would be gone very quickly when lending it out. I had $50 million with myself and investors ready to go. If you’ve got $25k, I’d recommend getting some investors together.
If your serious, talk to an attorney.
I did a bunch of reading on the Montana website and that was exactly what I needed. I didn’t realize that there would be that much tape to cut to just loan out some money. :o Thanks for the link. I learned a lot. I don’t think that is quite what I am wanting to do, especially not right now.
Thanks,
DB
In new york it takes both arms both legs an eye and an ear plus a ton of money to go with the regulations! Just kidding (not really) I couldnt resist. All I know is new york is a notoriously liberal state which means no good for business or anything else for that matter unless you are a socialist. There are a ton of regulations that you would have to go by.