Finding financing for your investment is one of the biggest obstacles you will face in the world of real estate. No matter your strategy, there are costs and benefits to choosing your source of funds. The decision to use your own capital, traditional banking institutions, or private lenders can be difficult. Once you've chosen your type of funding, choosing a specific partner is more difficult still. All lenders are not created equally, and there are significant differences between different loan products that inform who you should work with.
If hard money is your choice, knowing what to look for in a hard money lender can be the difference between success and failure in your real estate investment.
Hard Money Lenders are Not Created Equal
Hard money lenders are characterized by their short loan terms, high-interest rates, and minimal red tape in the closing process. These characteristics are a byproduct of their existence as asset-based lenders. This means that they don't need to mitigate risk to the same extent as traditional institutions because they hold a lien position on the asset themselves and are compensated well by origination fees and interest payments.
But just because hard money lenders share these characteristics, it doesn't mean that they are all one and the same. Slight changes in terms can mean big differences in the end results of your investment. Additionally, unlike traditional financial institutions, hard money lenders aren't mindless transaction machines. There are real people working behind the scenes to get you funding and help you succeed in your investment. It's important to know who you're working with and establish an ongoing relationship to give you a partner in your real estate investment.
Terms and Expectations Are Clearly Defined
Hard money lenders often get a bad rep because of their high-interest rates and origination/closing fees. But the truth is that all forms of financing are going to come with varying costs of capital. When searching for a lending partner, the most important thing is that their terms are clearly defined. You need to know exactly how much financing will cost you so you can create an in-depth analysis of your investment. Professional flippers, including those with enough capital to fund deals themselves, use hard money because they are confident with the associated costs. They know their deals will be profitable and hard money allows them to leverage multiple deals and streamline their deals.
The Hard Money Co. outlines our terms in crystal-clear language. We also provide a loan calculator that will give you an expectation of what your costs look like for our product. Most importantly, if you fill out an application, a loan originator will reach out to you within 24 hours to discuss the specifics of your deal in a no-commitment conversation. If you're working with a lender who doesn't offer this level of transparency, you may want to reconsider.
Know Who You Are Working With
It's easy to look at mortgage products and view them as cookie-cutter, nameless transactions, but that couldn't be further from the truth. No matter the loan size, it’s the people that get the deal done. Establishing a relationship with your lender from the outset is key to building a successful investment portfolio with hard money. At The Hard Money Co., you will receive a follow-up email introducing your loan originator immediately after submitting your application and will have a conversation with them shortly after. From there, they are available to you by phone, text, or email, for ALL of your financing needs. The more seamless the communication, the faster we can close your loans.
This should be your expectation for all of your lending relationships. If you are getting passed back and forth, or can't get a callback, submit an application with The Hard Money Co. and find a partner you can rely on.
Check for Testimonials, Reviews, and Repeat Borrowers
See if your hard money lender has the reputation to back up its promises. Quality lenders are defined by the borrowers who go back to them time and time again. At The Hard Money Co., more than 50% of our borrowers will return to us for another loan. This is not the industry norm.
Such a high percentage of repeat borrowers means that we create value for them that they can't find elsewhere. If you have questions about our reputation take a look at our reviews and testimonials. We'll also be more than willing to put you in touch with our borrowers so you can hear first-hand about our successful partnerships.
Hard money financing is another tool in your kit, and it may not be right for every deal. But if you are using hard money for your next project, know that you are working with the best in the business by doing your due diligence. We're confident that once you work with us at The Hard Money Co., you will see just how high the bar is for your financing partners.