How To Be a Broker of
Hard Money or Private Money
I have been a Lender and Broker of Hard Money, also known as Private Money,
for many years. Over 8,000 brokers have used our services over the
years. This article will focus on being a successful Broker of
Hard Money. The rules apply for most of the states.
If you are looking
for a great place to find Hard Money Lenders or Private Money Lenders in any
state "click here". There are also
advertisers on this page what would like to fund your loans.
Note: I am not a real estate attorney and that you should always seek the
advice from qualified persons in your state. With that said here are
the secrets of the trade. They are not complicated but most Brokers do
not follow them. That is why they fail. Do Hard Money Loans
work? Most definitely YES!
Most Important Tip! The one who has the money controls everything.
That means not you, the other Broker or your client control the deal.
The one who has the money controls the amount to be lent, the loan to
value, the commissions to be paid to you and everything else. There
are so many good deals out there the lender can easily just move to another
loan.
Tip: You must be licensed in the state you are trying to broker in.
To many times over the years a deal dies because the broker said that they
were licensed to do business and were not. Think you can get around it
just one time. Well just remember that if your client needs Hard Money
there is probably other problems you do not know about. Many of these
loans end up in the hands of attorneys and you will be sued! Not being
licensed just means you will loose. Ask your Real Estate Attorney.
Tip: Make sure that the funding source actually has the money.
More often than not you think you are dealing with a direct lender and they
are only another broker. At times they can be both so ask every time
if the loan you are submitting will be funded in-house. And if it
won't be request that it NOT be brokered to anyone else.
Tip: Broker Chains usually never work. Nothing worse that
finding a funding source and having the fourth broker (who actually has the
client contact) demand to much money to make the deal work. Remember
the more commissions paid weakens the borrowers position and this always
makes the lender nervous. If you do end up in a broker chain make sure
that all the Brokers have agreed up front what each will be paid. An even
better way is to split the commission as a percent of total commissions.
This must be in writing!
Tip: Stay away from Owner Occupied properties. The commissions
are capped in most states and more importantly they are more litigious.
I call this the "never be on the 6:00 o'clock news". Nothing is worse
than helping with a Hard Money loan that goes south and the poor old person
is telling the reporter how they never could have serviced the loan in
the first place. And that "YOU" lied to get them the loan. Think
this doesn't happen...Just watch the news.
Tip: Non-Owner Occupied properties and Commercial properties are the best.
These borrowers are considered "sophisticated investors" by the
courts. This means that when the loan goes into default you are not
kicking someone out of their house the lived in for the past 30 years.
Also most property investors are not emotionally attached and if they loose
the property, it was a business decision.
Tip: LTV or Loan To Value. LTVs range greatly and change daily
according to the kind of property and amount of money the lender has to lend
at any one given time. Bottom line is the lower the LTV the happier
the lender. As a general rule Single Family Residences are lower than
Commercial (more tenants = more stability). Keep your LTVs under 60%!
Tip: Loan amounts are crucial! One of the biggest mistakes I see is
the Broker trying to make the 1 million to 50 million dollar deal. Yes
they do happen but very very infrequently. At a Hard Money meeting I
attended one of the old-timers said to me. I quote "if they cant get
the Bank to lend on the project, and it looks like a great loan, you just
haven't found the problem yet". Here are the facts: 90% of all
Hard Money or Private loans are under $400,000. The reason is simple.
Most Hard Money lenders have under $7,000,000 to lend and the smaller the
loans the less risk per loan. The other reason is if one of their
investors looses money their whole business is at risk.
I hope you liked this article. If you care to comment on it or share
your experience, use the form below.