One fear that many new Real Estate Investors have is where to find money for real estate investing. And once new Real Estate Investors begin to read about some of the options they may have, they are bound to come across the term "Hard Money Lender". So, what is a Hard Money Lender (HML)?
A Hard Money Lender is a private individual or small company of private lenders who are usually locally based in the area where the real estate is being purchased. Hard Money Lenders often look at a potential real estate deal when deciding whether or not to make a loan on a particular property. Unlike traditional banks or lenders, they are generally not as concerned with a particular person's financial background, situation, or credit. The property is the direct collateral for the loan.
Hard Money Lenders often charge a hefty premium to lend money, meaning several points more and a very high interest rate for each loan; many real estate investors do not use HMLs because of this. Many Hard Money Lenders can turn around a loan (meaning you can have money in hand) within 24 hours.
Sometimes Hard Money Lenders are used in addition to regular or traditional funding. Other times Investors utilize Hard Money as his or her only means of funding.
When considering whether or not to use hard money, you have to calculate your numbers to decide if this is something that is worth it to you. If you need money within two days and will gross $40,000 when all is said and done, does it really matter if you have to pay $10,000 for the money? Or is it just part of the costs of doing business? Only you can determine this.
What is the best way to find Hard Money Lenders?
The best way to find a Hard Money Lender is to talk to people who are already working with them. The simplest way to do that is to ask other active investors. Find other investors by attending REIA meetings. Another great way to find other investors is to go to foreclosure auctions. See who is bidding on which properties, bring business cards and strike up a conversation. Ask them where they are getting the money and go to the same person or place.
You can also check with:
1. Attorneys and/or title companies (that handle closings for other investors)
2. Real Estate Brokers (that work with investors)
3. Bank Officers (small, local banks that are portfolio lenders, lenders who keep the loans "in house")
To find a Hard Money Lender, you need to tell everyone you know that you are a Real Estate Investor. You need to build a team and you need to network with other investors. Often times if the numbers on the deal are solid ("guaranteed" profitable), finding the money should not be a problem (especially when you have surrounded yourself with a network).
Finally, when Investing in Real Estate, it is important to weigh all of your financing options against all of your proposed exit strategies. Real Estate Investors who consider all of the pros and cons of a potential deal will have a much easier time knowing where to find the money that they need.
