The world of real estate has always been highly competitive, but if you want to find success as an entrepreneur in the real estate market, then becoming a hard money lender could be your best option. But before you start lending hard money, you need to weigh out your investment and financial strategies. And once you have gained confidence, you will gain success in your business. Here’s a look at how you can become a successful real estate hard money lender.
As a hard money lender, real estate investors buying discounted cash deals will be your primary clients. Your financial provisions can help them acquire the capital for purchasing, renovating or wholesaling a property. However, there are some real estate investors who will approach you to use the loan money as a bridge till such time they can find more conventional financing, or even sell off their property later on so that they can pay off their accumulated debt. This gives you a wide range of potential clients for your business.
All you need is is money — or relationships
If you have money, well and good, but if you don’t, then you can always pool the money from other investor and wealthy individuals looking for a good return on their money. For this, you need to build up a good professional relationship with other potential investing partners so that you can raise the amount that you need. With nothing but a good liaison, you no longer need to worry about the money for your business.
The biggest advantage real estate investors get for doing business with hard money lenders is that these lender can qualify their deal quickly without too much investigation about who is seeking the loan. The situation is quite the opposite when investors approach a bank for their loans, and the process is long and full of complications. In order to avoid such a situation, a smart investor would approach you first for their urgent loan requirements. Isn’t that wonderful? Take a look at the following benefits of lending money to investors as a hard money lender:
You can begin lending quickly Hard money lenders dont need an office. You can do this job easily by yourself. Investors require funding for their projects, and doing business with you will give them the opportunity to get instant access to loans. When borrowing money from you, investors don’t have to go through waiting time, red tape or transactional delays that are common when seeking financial assistance from a bank. You spare the investors all these troubles. The approval process becomes way simpler and shorter. Banks usually operate in highly risk-adverse manner because of which several projects fail to gain approval from banks. But when the same investors come to you for loan, you can lend them money at more flexible terms for a short term which offers mutual benefits to both the parties. Because of the risk involved, you have the upper hand of keeping the interest rates high. Generally, interest rates for such loans range between 10-12%, especially depending on the perceived loan risk. You can also charge points ranging between 1-3% to issue the loan (where each point is equivalent to a percent of the total loan value). As a result, you can expect solid returns, and earn a good amount in this business.
You get to invest your money over and over Hard money loans are typically short term. BorrowersAs soon as one loan ends you can reinvest that money with another investor and charge handsome loan origination fees between 1 and 3 points.
In case the borrower plans to do a rehab or flip on their residential property, you might want to keep the duration limited to 6 months. This will encourage the borrower to get in and out of the deal without any procrastination. It is always safe and less risky to opt for 6 months. It generally works in favor of the lenders.
You get to keep the property In case the borrower defaults, you can foreclose on the property which will allow you keep an amazing deal well below the actual market value of the property. So, in order to stay prepared for foreclosure, you need to be smart and learn all about the foreclosure process. Since this process is different for every state, you need to find out what your role is and how much it can cost you. With proper knowledge, you can save lots money involved in foreclosing a property, and avert any kind of loss. Eventually, it will become a win-win situation for you and your business.
Hard money lenders have limited risk exposure In this business, borrowers are made to put in some of their money as part of the deal. This helps you lower your risk as a lender. Moreover, it also motivates the borrower to take the deal seriously so that everything goes according to plan. In case the borrower is late, you can charge late fee. All these processes work in your favor as the lender, while helping out the borrower with the funding. As you minimize the risk, your chances of making it big in this business also increase.
Being as a hard money lender is profitable If you can minimize the risk, you will end up earning impressive amounts of money, especially because the interest rates are so high, and because the borrower cannot just walk away without making the payment. The solid foreclosure clauses, charges for late payments, and the ability to get into the business even without having any money of your own are the major advantages of becoming a hard money lender. If you possess the qualities of being diligent and careful, chances are high that you will enjoy solid returns with minimal risk involved.