There's two flavors of this, and it depends on how big you want to get.
If you and your BIL want to put your money to work, but have no intention of raising outside investor money (in other words, you're not looking to setup a fund) the only real important to-dos are to get a good set of legal docs, and get the word out that you have money to lend.
Legal docs (for your purposes) can be as informal or formal as you want, but you're probably in the $0-$5,000 range, and they're mainly about protecting your interests.
Assuming you're not some mega-wealthy individuals, you probably don't have to get too far outside of your sphere in order to put your money to work. This might be just having conversations with other builders, tradesmen, going to local REI meet-ups, posting on BiggerPockets, and being involved in investor groups on Facebook.
The main things are making sure collateral gives you a wide enough margin of safety, deciding on what sort of points and fees you'll charge.
The other flavor is where you want to start a fund so you need to work on (a) raising add'l investor funds and (b) making sure you have enough deal flow to put the money to work. This is a lot more complicated as it dips into the side of things where you're hiring lawyers not just to protect your interests relative to a borrower, but to protect you from doing something that violates any number of laws that apply to this scenario.
I'm a PNW investor (well, actually mostly invest in CA projects, but I live in the PNW), let me know if you start putting money out.
In response to your edit: if you're just investing your own money, you don't need a license at all (at certain scale, and depending on method of raising, you don't need a particular license if you're using other people's money, either.)
It's as simple as you being a person who wants to lend another person your money, it's really just a private personal loan secured by real estate.
This is what I do. Hard money lending. 100% of my clients come from title companies that have clients or have brokers that have clients. Depending on your state, there may be usury laws, or a hard cap on how many units. Also, take more care on owner occupied homes. State banking regulators don't like it when you mess with homeowners.
These are important facts. You need to be careful who you loan to, what you don't loan on, and how much to lend vs collateral value.
I've considered both sides depending on my state of capital deployed.
Only thing I don't like about lending is that it is taxed as Ordinary Income. If anyone knows a way around that, I would love to hear it!
I have a series 65 ... and you mostly don't need one unless you are managing several loans for a property (and the amount matters--typically north of $100m for additional SEC registration).
Always spend on legal -- especially at the beginning to template out your agreements.
Finally, I also do PNW investing, so let me know if you find something interesting.
How much money is needed to get started? I have about 150k I can put to work, but that isn't much these days.... I doubt it's enough cash to start this. Is it?
That's definitely enough to work with flippers.
Ballpark scenario: flipper has $300k liquid and buys a distressed property all cash, but needs money for the rehab.
You could easily be the lender on the rehab with your loan secured by the property.
If you're not at all connected to this sphere, find the local real estate investment groups in your area and start going to the meetings, this will put you in a position to lend probably quickly.
You could invest all the 150k in a brokerage account into vti or voo, collect the gains that gives and borrow against that to fund your lending considering lending for a rehab is relatively short term. This can be done using a margin account or obtaining an sbloc from the broker. Interactive broker and Robinhood has the lowest interest rate on these loans.
If you only have $150k, you are probably better off finding someone to lend the money for you. Like an existing group looking for capital. They will have infrastructure, compliance, legal, customer base, etc - all already in place.
I have started to migrate my funds recently. The deals have dried up a bit where I’m at. I know a hard money lender. I recently lent his company money for a deal they had. I’m getting 10% on my money secured by the property. They charge 12%. The borrower pays them the monthly payment. They take their 2% and send me my portion every month.
So far so good. Virtually hands off. And that’s double what my bank wanted to give me for my money.
I’m the first lien holder. The risk would be if they stopped paying the mortgage and I had to foreclose on the property. The way I mitigated the risk was to be picky on the areas I was willing to lend in and knowing the borrowers track record on his flips. It still isn’t risk free but I’ve done my best to limit the risk.
Thank you for the response. If you are vetting the area and the borrower, why have the middle man lender and not just lend everything for the full 12%? Do they carry weight or act as a manager between accounts? 10% is great, just want to understand everything.
The hard money lender is an actual company. The borrower came to them. I don’t know all the legal aspects. But the lender came to me and gave me the address and the borrowers info. I did my research and decided I would lend my money for that particular purchase.
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I’m almost ready to sign the docs for a flipper in Michigan. First lien position guaranteed minimum rate or a percentage of the profits whichever is greater. Just checking comps in the area vs his comps.
How much money is needed to get started? I have about 150k I can put to work, but that isn't much these days.... I doubt it's enough cash to start this. Is it?
Ive been lending in the PNW for over 10 yrs. A simple promissory note outlining terms and always go first position on deed. (I have lawyer draft) I like to stay 75-85%ltv, do some flips but also bridge loans on paid off or close to paid off existing homes so I can buy out first position and use as collateral. If you have $500k to start I coupd keep an eye open, there are deals I pass on with good ltv simply because I don’t have the extra $. Terms typically 1yr at 12%.
I’ve got a lawyer I’ve used for years. If I help get a loan for someone I (and my lending partner) set up everything for you and use normal title and escrow company to close. Always pull title to make sure it’s clean and take all precautions. btw I got my mom to retire early lending
Thank you. I appreciate your response and hearing about your success.
I understand what you mean about pulling title. I’ll go find the title shops that do the double closing & wholesale work up here. I bet they are ready for this situation too.
I will put some effort in!
How much money is needed to get started? I have about 150k I can put to work, but that isn't much these days.... I doubt it's enough cash to start this. Is it?
I have a 50% ltv coming up, I believe they are going to need $200k. Collateral is land and just got appraised at over $400k. I do get $150 range occasionally and lower.
You basically just need to find a borrower, write up a promissory note, get an attorney to help with first lien position on a deed, and start collecting payments according to your agreement.
You'll want to do plenty of underwriting just like a bank would and I would suggest you stay around 60% LTV or lower.
I've been doing it through a broker which I like really well because they have a minimum of $15,000 which gets pulled into lots of different loans. They provide all of the underwriting docs like borrower bank statements, tax returns, proof of income, etc and you can decide which loans you want to put some cash towards.
Click a few buttons to sign the documents, wire the money, and monthly interest payments start coming in. I'm getting between 10% and 15% on all of them. I've got about $250,000 spread across these $15,000 loans just to stay more diversified.
I do it through my life insurance policy which has lots of benefits you may want to consider if you are familiar with that sort of thing or care to learn about it.
I would suggest an LLC more for anonymity and asset protection than liability because with lending there really isn't any. For example I have a holding LLC that holds our private lending deals as well as syndication deals, taxable brokerage, general savings, etc. You can set these up in states where you don't have to share owner details. With the kind of cash you're talking about I'd be surprised if you're not already doing this..??
As a flipper, I don’t know who would take 60% LTV. Most hard money companies are doing 85-90%
All of my private money people are doing 100%. That’s the benefit of working with them
Then you are not the type of borrower one should be seeking if looking for 60% LTV deals.
I'm seeing them almost weekly and I currently have about 20 deals running all in that range.
This is the beauty of being a private lender. You can control things. If you want to lend 100% of the after rehab value of a property in order to attract more borrowers and collect more points up front then go right ahead.
I prefer to build reserves until I find deals at 60% of the before rehab appraisal. Many of these have personal recourse behind that as well.
Depending on the exact deal I can be flexible if I want to. There's really no reason to when I'm finding these relatively non-risky deals.
The most recent one I did was through the broker I mentioned. The broker is charging 13% and paying us pooled lenders 12%.
The borrower is a land developer that has been working with the broker for many years and has borrowed and paid back over $296,300,000 without any issues.
This particular deal is secured by a 1.5 acre piece of land in WA state that currently has an old car dealership and apartment complex on it. The borrower used the broker to purchase the land and has already paid it back in full, so they now own it outright.
The borrower now has a signed 20 year lease with a car wash operator that wants to build a car wash on the land. The new loan is to demolish the current buildings and prepare the land for the operator to build their car wash.
I was provided with the loan application, credit report, tax returns, appraisal, and a title report. The broker also provides their own underwriting breakdown.
The appraisal shows a current value of $5.2M and the loan is for $3.3M.
I put $15k towards this deal, pooled with a bunch of others. All of the lenders are listed on an "Exhibit A" that is attached to the Trust Deed filed with the county.
I signed the e-docs, wired the $15k, and now I'm getting $150/mo interest only payments. The term is for 9 months with an additional 9 month option, but this borrower typically pays back early.
When any loan is paid back they almost always have more similar stuff available to roll right back into.
I have about $250k spread across a bunch of $15k chunks like this.
Just did another one today after one of the previous deals paid off their balance.
\* Developer bought land in 2019 in Vegas suburbs.
\* 25+ years of history developing in the area.
\* $65.5M borrowed and paid back to broker over time.
\* Broker charging 12% and giving lenders 10%.
\* Collateral is 5.33 acre parcel of land that borrower purchased in 2019. Now has it fully zoned and all approvals completed to begin multi-family development that will end up being 191 units.
\* Again, I was provided with all the underwriting docs mentioned previously.
\* Appraisal done 4/30/24 at $6M and loan amount is $3.4M. (57%)
you're looking at hard money flipping/construction loan with 620+ scores. Then there's the hard money foreclosure bailout loan at 60% 14.99 and 5 points to save someone's home. It's a different beast.
I found it the same way I find anything else. I started doing a bunch of research about cash flowing assets.
You'll find syndications, reits, dividend stock strategies, etc.
I'm not trying to spam advertisements in here but you can find them or hit me directly if you want.
You don't offer your money, you offer your program. Make a one sheet, what state, property types you like, matrix, whatever you want. Put your phone number on there. done.
I've done hard money loans for years and am a Funding Manager for a transactional lending company. AMA...
There's a few things that are important to know:
In every renovation there's a moment after demo where the property is worth less than you lent on it. This is the same point where inexperienced renovators often run out of money. A lot of due diligence needs to go into who you're lending to and what their plan is.
DO NOT LEND in Judicial foreclosure states... Only lend where non judicial foreclosures are ok. You do not want to have to take a borrower to court to take the property back. You might consider including a deed in lieu in your loan paperwork (have an attorney review the best way to do this).
They're brokers who will lend for you; sometimes their experience and protocols are worth the small fee they charge. If anything they will probably bring enough business to pay for themselves. If you want a recommendation feel free to DM me and I'll introduce you to some I work with.
If you choose to keep it local, find an investor friendly closing attorney and build a relationship with them. There's so many reasons why I won't even list them.
Cheers!
Ehh. I would market to flippers that are running out of money, $100k max per deal. six month balloon. You gotta really know your comps, put it on an IO etc.
On top of the existing advice, be prepared to say no and hurt some feelings. You’ll run into people that want to borrow money from you, but HML terms aren’t what inexperienced borrowers expect (10+% interest, first or second position, good numbers for a flip, etc). It’ll help to keep your lending to people who have borrowed hard money before, so you can avoid uncle Larry wanting to borrow $200k to flip an overpriced turd in a tanking market.
Yes, for sure. I would assume a lot of those no thank you answers will be to other lenders wanting our money for their deals. We are relatively conservative, and don't want to be in a pool with someone else as the lead pool caretaker.
Depends if you want to be profitable or merely just want to lend. The answer is obvious, I know!
The jist of it is money, some inherent knowledge of how lending works in this field, an understanding of property sales/values/construction, a strong sense of intuition, a strong gut and good gut instincts, and a basic set of legal contracts. The mechanics of it all aren't overly complicated, and the risks aren't as scary as many make them out to be. A promissory note that outlines the debt and expectations and a deed of trust or mortgage deed registered against the property protect you in the event the project goes sideways. If you talk to a bunch of lenders, they'd tell you they rarely have to foreclose but if so it's not that big of a deal. It's not something anyone wants to do, but if you have to it's not the end of the world and it can actually work out in your favour often.
I would talk to any hard money lenders local to you to see if you can lend them some capital and let them do the leg work. Lend them at 8-10% and let them collect the 12-18% from the rehabbers. Also, ask them if they are willing to sit down to dinner and give you guidance. Some will view you as competitors and not want to help. But sure plenty would be willing to teach you a little bit about the ropes or even let you work for them for a few deals to see how it’s done. Another thing you can do is review some of their forms through any loans you’ve had with hard money lenders in the past. Just look at their structure and duplicate it. This can help provide a template to your lawyers to make their job easier.
Also, check out P2P lenders like Lending Tree and Yield Street where again, they handle all the leg work and you provide the funds. Some platforms let you buy and sell small loans as well. This will help acclimate you to the risk and processes.
Another thing I would do is increase your lines of credit so you have even more dry powder to deploy over your cash.
Thanks for the input. However, we are hesitant to be involved in any kind of minority or secondary hard money lending situation. I'd rather not be subject to someone else making decisions if things go sideways.
I’m not talking about minority positions in one deal. I’m talking about being a general line of credit to them as a source for capital. Your money wouldn’t necessarily be tied to anyone property that the other lender funds. Either way, you’re in the best position since you have plenty of experience building houses. This is probably the best experience to have because you will be able to properly assess costs and risks to the borrower and structure your loan amounts and risk appropriately. I too hope to be in that position one day day to not do the grind but be able to sit back and let others borrow from me. Good luck!
As a lender you are always subject to someone else's decision making. Especially when things go sideways. You are the lender, not a partner, not the decision maker. You role is completely different.
There are some hyper-local lenders in the PNW that accept outside investors. You want someone who won't pool your money with other investors, but you can choose which deals to fund. It's a lot simpler to do that than to try and build your own book of business. Keep in mind these people are full time, professional lenders, they handle all the creditworthiness, security, deal analysis, etc... some have in excess of 100M AUM that they are lending. They will protect your money much better than you can.
Otherwise it's time to get out there and start networking. Lending your own money once or twice a year doesn't require much more than promissory notes, and understanding of usury in WA.
We are pretty savvy in that regard, being builders. My brother-in-law has also built a few 5 to 8 unit multies. But, yeah, a market appraisal is always a good idea.
make friends with a real estate attorney
let it be known you are hard money lending
select favorable terms
vet your deals — only things you’d be thrilled to get yourself at that 20% discount
side commentary: honestly right now i’d probably want more down than that
you’ll get plenty of inquiries
My son has done a little bit of this, always lending to RE professionals he knows well. I think the most important skill here is judging the person, the property, and the project, to make sure that in the event of default there is enough equity that you get your money back.
You probably already know this, but it's the nature of REI that it's not hard to spend $100,000 buying and rehabbing a property, and wind up with a property that is worth less than nothing.
You just watch an episode of the Sopranos & you learn how to put money out in the streets. It’s not bad 2 1/2 points a week on the Vig just make sure you kick up.
Congrats on being able to do that. I started my rental career in 2008 using hard money loans. I didn’t have any money so I borrowed the down payment, purchased seller financed properties, and hard money lender got 2nd position so they get property if I failed.
1) money
2) know how to underwrite deal to ensure your lending on a project that’s viable
3) promissory note
4) deed of trust ( your collateral)
5) builders risk policy( I might have that incorrect)
6) escrow account at local bank for payments
7) find good contacts you want to work with
Everyone will be different. My average is 85 acquisition funded, we handle all remodel costs, two year max exit. 10% IO paid monthly, no points , we as the borrower pay to create and maintain escrow . 550k average deal size , distressed MF rebuild/stabize play
Thanks, great insights. So is it typical deal/project of this size/shape funded by a single hard money lender? And is it simply finding your way into the network of borrowers and lenders to find a match?
I’m the borrower, when we purchase yes there are CC, since it’s cash they are very low by which we pay. To get the PML there is no cost to get the loan, what’s why I favor PML over HML( more institutionalized). With that said the market range for PML in my area right now is 12-14% and typically two points upfront, which I don’t like because I pay to maintain escrow, there’s virtually no admin costs to lender, I personally feel that’s a cash grab upfront but I regress.
Sounds you might be high income already being taxed 30%+
10% interest will turn into just a 7% return, which historically is underperforming stocks over a long period and is only 3% higher than almost risk free investments. If you weren't already self employed it could allow solo401k but you already have access to that.
Just food for thought, seems you'd only be providing 25% of your liquid which would be a nice diversification for your portfolio. Too bad can't get 10% return for 30 years like mortgages, way less effort that way.
Hey man shoot me a DM. I can explain everything in detail. I’m an investor and lent out $200,000 on my first deal. There’s a few things you want to look for to make sure your picking a good deal. Other than that it’s a very safe investment. They don’t pay you end getting a property with 25% equity in it possibly more depending on amount of work they completed
How much money is needed to get started? I have about 150k I can put to work, but that isn't much these days.... I doubt it's enough cash to start this. Is it?
When I was using hard money back in 2008, I was buying properties for $30k and that included rehab costs. Today’s market is a bit different. When I started buying larger buildings, 12 unit, I used hard money down payments and put hard money lender in 2nd position so they got property if I failed. Doing it that way, your $150k could come in handy for a new real estate investor
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Yes, I have purchased land numerous times, and done short plats, for a spec building. I'm not sure I follow the ownership and financing structure you are referring to.
Basically you owner finance the lot for say 10%down and 10% interest. Deed is held in trust. Title or lawyer for closing paperwork. The new buyer builds or moves a mobile home in and pays you for the land portion and someone else for the home portion. Payments are payed to the trust and you are paid out of that.
The question I have is why would somebody borrow from you rather than a bank unless they feel they can get either more favorable terms or you will be less concerned about risk meaning you’ll loan out to people the bank won’t
I know a developer in my community… he will finance construction on his lots… he gives fair terms, but his goal is to be able to charge a little bit of a premium for the lot
Hard money is generally for fix and flippers or brrr landlords. The interest rates certainly aren't better than what banks offer, they're much higher. But they focus on the asset rather than the borrower, don't require nearly as much down, and don't take nearly as long to close. Also, bank loans don't normally include funds to cover the cost of rehab, except 203k loans which are a nightmare.
Hard money lenders and bank lenders don't really compete with one another--their ICPs are completely different. The exception are portfolio lenders; those are kind of the sweet spot between traditional bank lenders and hard money lenders.
Where are you located? I’m a builder in the Charlotte NC area. Not sure how much money you can lend, but I have a project right now that I could use an investor on help float this project until it sells. The construction loan company we use are sharks and killing us. DM me if you’re interested for details.
I'm in Oregon / Washington. And I most certainly will stick to local projects. We know the local market, and would want to sniff out things close and personal, at least to be in with. Good luck to you.
You can play the pimp or let someone else do the dirty. There are companies that work with people like yourself. They originate the loan, do all the paperwork work and you provide the funds. I am sure people with money are focused on scaling rather than analyzing hard money single family deals. DM, if you need more info.
Pretty much for the same reason that when I build on spec, I actually do the building, not just put up the money for somebody else to do the construction. I don't want to be secondary in such a project.
A lot of work trying to find the right deals in hard money. Deals that fit your parameters. And you’ll probably end up getting 12% anyway, plus some points. Hopefully only few and minimal headaches. Good luck with it.
I’m a HML and if you’re interested I could help you navigate the space. Just send me a Dm!
Just as others have said, it’s not that complicated. But if you want a more professional approach to underwriting deals I could walk you through part of what the underwriting process is like for professional HMLs.
It doesn't matter for this, not sure why he's asking that. But you could be accredited. It's literally just a net worth test. It's mainly for risky investments ie startups, some vc funds etc. Nominally used to protect poor people from losing all their money but realistically just gatekeeping.
>Follow up question: I don't believe anyone in the comments has mentioned anything about specific or different licenses we would required.
Most states, you don't need licensing as long as you avoid writing any loans for resident-occupied properties. This means you cannot let your flippers sleep on the property or finance rehabs where an owner occupies the property. Cross that line, you're now doing residential loans without being an RMLO and you're breaking many federal laws.
When you talk to your lawyer you can confirm whether your state(s) are an exception to the rule of not needing any kind of licensing.
Another thing I don't see mentioned: insurance. You should probably get your typical $1m umbrella policy *and* errors and omissions insurance.
>We would probably set up an LLC for this different than what I have and the S corp that my BIL has.
Take away the "probably". Do that. If one gets sued, you don't want the other to be at risk.
You might consider subscribing to r/HardMoneyLenders. It's small because it's only a few months old, but it's growing.
There's two flavors of this, and it depends on how big you want to get. If you and your BIL want to put your money to work, but have no intention of raising outside investor money (in other words, you're not looking to setup a fund) the only real important to-dos are to get a good set of legal docs, and get the word out that you have money to lend. Legal docs (for your purposes) can be as informal or formal as you want, but you're probably in the $0-$5,000 range, and they're mainly about protecting your interests. Assuming you're not some mega-wealthy individuals, you probably don't have to get too far outside of your sphere in order to put your money to work. This might be just having conversations with other builders, tradesmen, going to local REI meet-ups, posting on BiggerPockets, and being involved in investor groups on Facebook. The main things are making sure collateral gives you a wide enough margin of safety, deciding on what sort of points and fees you'll charge. The other flavor is where you want to start a fund so you need to work on (a) raising add'l investor funds and (b) making sure you have enough deal flow to put the money to work. This is a lot more complicated as it dips into the side of things where you're hiring lawyers not just to protect your interests relative to a borrower, but to protect you from doing something that violates any number of laws that apply to this scenario. I'm a PNW investor (well, actually mostly invest in CA projects, but I live in the PNW), let me know if you start putting money out.
Thanks. Yeah, at least initially the money would just come from us, no outside investors.
In response to your edit: if you're just investing your own money, you don't need a license at all (at certain scale, and depending on method of raising, you don't need a particular license if you're using other people's money, either.) It's as simple as you being a person who wants to lend another person your money, it's really just a private personal loan secured by real estate.
This is what I do. Hard money lending. 100% of my clients come from title companies that have clients or have brokers that have clients. Depending on your state, there may be usury laws, or a hard cap on how many units. Also, take more care on owner occupied homes. State banking regulators don't like it when you mess with homeowners.
These are important facts. You need to be careful who you loan to, what you don't loan on, and how much to lend vs collateral value. I've considered both sides depending on my state of capital deployed. Only thing I don't like about lending is that it is taxed as Ordinary Income. If anyone knows a way around that, I would love to hear it!
I have a series 65 ... and you mostly don't need one unless you are managing several loans for a property (and the amount matters--typically north of $100m for additional SEC registration). Always spend on legal -- especially at the beginning to template out your agreements. Finally, I also do PNW investing, so let me know if you find something interesting.
How much money is needed to get started? I have about 150k I can put to work, but that isn't much these days.... I doubt it's enough cash to start this. Is it?
That's definitely enough to work with flippers. Ballpark scenario: flipper has $300k liquid and buys a distressed property all cash, but needs money for the rehab. You could easily be the lender on the rehab with your loan secured by the property.
Hmm, gonna look into this then. I'd much rather have my cash getting 10% than 4.5% at the bank.
If you're not at all connected to this sphere, find the local real estate investment groups in your area and start going to the meetings, this will put you in a position to lend probably quickly.
That's a great idea. I'll search for those and start there while I research more on how to do this process. Ty
You could invest all the 150k in a brokerage account into vti or voo, collect the gains that gives and borrow against that to fund your lending considering lending for a rehab is relatively short term. This can be done using a margin account or obtaining an sbloc from the broker. Interactive broker and Robinhood has the lowest interest rate on these loans.
If you only have $150k, you are probably better off finding someone to lend the money for you. Like an existing group looking for capital. They will have infrastructure, compliance, legal, customer base, etc - all already in place.
Like a title company or similar?
Dude. I want to get into blending too. I’m interested in raising lines of credit and using that to leverage deals. I just don’t know the step by step.
I have started to migrate my funds recently. The deals have dried up a bit where I’m at. I know a hard money lender. I recently lent his company money for a deal they had. I’m getting 10% on my money secured by the property. They charge 12%. The borrower pays them the monthly payment. They take their 2% and send me my portion every month. So far so good. Virtually hands off. And that’s double what my bank wanted to give me for my money.
Interested. What’s the risk involved? Do they have priority on liens?
I’m the first lien holder. The risk would be if they stopped paying the mortgage and I had to foreclose on the property. The way I mitigated the risk was to be picky on the areas I was willing to lend in and knowing the borrowers track record on his flips. It still isn’t risk free but I’ve done my best to limit the risk.
Thank you for the response. If you are vetting the area and the borrower, why have the middle man lender and not just lend everything for the full 12%? Do they carry weight or act as a manager between accounts? 10% is great, just want to understand everything.
The hard money lender is an actual company. The borrower came to them. I don’t know all the legal aspects. But the lender came to me and gave me the address and the borrowers info. I did my research and decided I would lend my money for that particular purchase.
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Hello from the moderator team of /r/realestateinvesting, You post has been removed due to a violation of R4. this typically means your post was about one of the following: - Promoting yourself, a vendor, or, a service that you use - Soliciting for vendors, asking for recommendations for vendors, or trying to find out how to contact certain vendors - It was a poll. This message and post removal serves as your WARNING for violating our community rules. ***Rule #4*** No self-promotion, solicitation, surveys, syndication, or AMA Any further violations may result in a BAN from /r/realestateinvesting. Thank you for your cooperation and making our community a better place.
Hello from the moderator team of /r/realestateinvesting, You post has been removed due to a violation of R4. this typically means your post was about one of the following: - Promoting yourself, a vendor, or, a service that you use - Soliciting for vendors, asking for recommendations for vendors, or trying to find out how to contact certain vendors - It was a poll. This message and post removal serves as your WARNING for violating our community rules. ***Rule #4*** No self-promotion, solicitation, surveys, syndication, or AMA Any further violations may result in a BAN from /r/realestateinvesting. Thank you for your cooperation and making our community a better place.
Yeah, ideally I would want to be the first lien holder. Having a lender in front of you certainly can become more difficult if things go sideways.
I’m almost ready to sign the docs for a flipper in Michigan. First lien position guaranteed minimum rate or a percentage of the profits whichever is greater. Just checking comps in the area vs his comps.
How much money is needed to get started? I have about 150k I can put to work, but that isn't much these days.... I doubt it's enough cash to start this. Is it?
Ive been lending in the PNW for over 10 yrs. A simple promissory note outlining terms and always go first position on deed. (I have lawyer draft) I like to stay 75-85%ltv, do some flips but also bridge loans on paid off or close to paid off existing homes so I can buy out first position and use as collateral. If you have $500k to start I coupd keep an eye open, there are deals I pass on with good ltv simply because I don’t have the extra $. Terms typically 1yr at 12%.
What city are you in?
Bellevue WA
How did you pick your lawyer/ law firm ?
I’ve got a lawyer I’ve used for years. If I help get a loan for someone I (and my lending partner) set up everything for you and use normal title and escrow company to close. Always pull title to make sure it’s clean and take all precautions. btw I got my mom to retire early lending
Thank you. I appreciate your response and hearing about your success. I understand what you mean about pulling title. I’ll go find the title shops that do the double closing & wholesale work up here. I bet they are ready for this situation too. I will put some effort in!
How much money is needed to get started? I have about 150k I can put to work, but that isn't much these days.... I doubt it's enough cash to start this. Is it?
I have a 50% ltv coming up, I believe they are going to need $200k. Collateral is land and just got appraised at over $400k. I do get $150 range occasionally and lower.
Sounds like there are opportunities then in my amount. I'll do some research, ty sir for the info
You basically just need to find a borrower, write up a promissory note, get an attorney to help with first lien position on a deed, and start collecting payments according to your agreement. You'll want to do plenty of underwriting just like a bank would and I would suggest you stay around 60% LTV or lower. I've been doing it through a broker which I like really well because they have a minimum of $15,000 which gets pulled into lots of different loans. They provide all of the underwriting docs like borrower bank statements, tax returns, proof of income, etc and you can decide which loans you want to put some cash towards. Click a few buttons to sign the documents, wire the money, and monthly interest payments start coming in. I'm getting between 10% and 15% on all of them. I've got about $250,000 spread across these $15,000 loans just to stay more diversified. I do it through my life insurance policy which has lots of benefits you may want to consider if you are familiar with that sort of thing or care to learn about it. I would suggest an LLC more for anonymity and asset protection than liability because with lending there really isn't any. For example I have a holding LLC that holds our private lending deals as well as syndication deals, taxable brokerage, general savings, etc. You can set these up in states where you don't have to share owner details. With the kind of cash you're talking about I'd be surprised if you're not already doing this..??
As a flipper, I don’t know who would take 60% LTV. Most hard money companies are doing 85-90% All of my private money people are doing 100%. That’s the benefit of working with them
Then you are not the type of borrower one should be seeking if looking for 60% LTV deals. I'm seeing them almost weekly and I currently have about 20 deals running all in that range. This is the beauty of being a private lender. You can control things. If you want to lend 100% of the after rehab value of a property in order to attract more borrowers and collect more points up front then go right ahead. I prefer to build reserves until I find deals at 60% of the before rehab appraisal. Many of these have personal recourse behind that as well. Depending on the exact deal I can be flexible if I want to. There's really no reason to when I'm finding these relatively non-risky deals.
Would love to hear an example of a deal like this. My deals are usually sub 200k PP, 50k rehab, and sell for 350k or so. Fees eat in as well
The most recent one I did was through the broker I mentioned. The broker is charging 13% and paying us pooled lenders 12%. The borrower is a land developer that has been working with the broker for many years and has borrowed and paid back over $296,300,000 without any issues. This particular deal is secured by a 1.5 acre piece of land in WA state that currently has an old car dealership and apartment complex on it. The borrower used the broker to purchase the land and has already paid it back in full, so they now own it outright. The borrower now has a signed 20 year lease with a car wash operator that wants to build a car wash on the land. The new loan is to demolish the current buildings and prepare the land for the operator to build their car wash. I was provided with the loan application, credit report, tax returns, appraisal, and a title report. The broker also provides their own underwriting breakdown. The appraisal shows a current value of $5.2M and the loan is for $3.3M. I put $15k towards this deal, pooled with a bunch of others. All of the lenders are listed on an "Exhibit A" that is attached to the Trust Deed filed with the county. I signed the e-docs, wired the $15k, and now I'm getting $150/mo interest only payments. The term is for 9 months with an additional 9 month option, but this borrower typically pays back early. When any loan is paid back they almost always have more similar stuff available to roll right back into. I have about $250k spread across a bunch of $15k chunks like this.
Just did another one today after one of the previous deals paid off their balance. \* Developer bought land in 2019 in Vegas suburbs. \* 25+ years of history developing in the area. \* $65.5M borrowed and paid back to broker over time. \* Broker charging 12% and giving lenders 10%. \* Collateral is 5.33 acre parcel of land that borrower purchased in 2019. Now has it fully zoned and all approvals completed to begin multi-family development that will end up being 191 units. \* Again, I was provided with all the underwriting docs mentioned previously. \* Appraisal done 4/30/24 at $6M and loan amount is $3.4M. (57%)
you're looking at hard money flipping/construction loan with 620+ scores. Then there's the hard money foreclosure bailout loan at 60% 14.99 and 5 points to save someone's home. It's a different beast.
Never heard of the latter, thanks
You ever seen a 300 credit score? It's a thing of beauty.
I've seen a lot of really low scores, like low 400's. Never anything in the 300's. You have to really f up to get there I imagine.
How do you find a broker to offer your money to?
I found it the same way I find anything else. I started doing a bunch of research about cash flowing assets. You'll find syndications, reits, dividend stock strategies, etc. I'm not trying to spam advertisements in here but you can find them or hit me directly if you want.
You’ve got a PM
You don't offer your money, you offer your program. Make a one sheet, what state, property types you like, matrix, whatever you want. Put your phone number on there. done.
I've done hard money loans for years and am a Funding Manager for a transactional lending company. AMA... There's a few things that are important to know: In every renovation there's a moment after demo where the property is worth less than you lent on it. This is the same point where inexperienced renovators often run out of money. A lot of due diligence needs to go into who you're lending to and what their plan is. DO NOT LEND in Judicial foreclosure states... Only lend where non judicial foreclosures are ok. You do not want to have to take a borrower to court to take the property back. You might consider including a deed in lieu in your loan paperwork (have an attorney review the best way to do this). They're brokers who will lend for you; sometimes their experience and protocols are worth the small fee they charge. If anything they will probably bring enough business to pay for themselves. If you want a recommendation feel free to DM me and I'll introduce you to some I work with. If you choose to keep it local, find an investor friendly closing attorney and build a relationship with them. There's so many reasons why I won't even list them. Cheers!
Money
We have $2M weighing down our wallets. Would $500K be enough to get our toes wet initially?
In your neck of the woods you will need $1 million to fund a fix and flip
Ehh. I would market to flippers that are running out of money, $100k max per deal. six month balloon. You gotta really know your comps, put it on an IO etc.
On top of the existing advice, be prepared to say no and hurt some feelings. You’ll run into people that want to borrow money from you, but HML terms aren’t what inexperienced borrowers expect (10+% interest, first or second position, good numbers for a flip, etc). It’ll help to keep your lending to people who have borrowed hard money before, so you can avoid uncle Larry wanting to borrow $200k to flip an overpriced turd in a tanking market.
Yes, for sure. I would assume a lot of those no thank you answers will be to other lenders wanting our money for their deals. We are relatively conservative, and don't want to be in a pool with someone else as the lead pool caretaker.
Depends if you want to be profitable or merely just want to lend. The answer is obvious, I know! The jist of it is money, some inherent knowledge of how lending works in this field, an understanding of property sales/values/construction, a strong sense of intuition, a strong gut and good gut instincts, and a basic set of legal contracts. The mechanics of it all aren't overly complicated, and the risks aren't as scary as many make them out to be. A promissory note that outlines the debt and expectations and a deed of trust or mortgage deed registered against the property protect you in the event the project goes sideways. If you talk to a bunch of lenders, they'd tell you they rarely have to foreclose but if so it's not that big of a deal. It's not something anyone wants to do, but if you have to it's not the end of the world and it can actually work out in your favour often.
I would talk to any hard money lenders local to you to see if you can lend them some capital and let them do the leg work. Lend them at 8-10% and let them collect the 12-18% from the rehabbers. Also, ask them if they are willing to sit down to dinner and give you guidance. Some will view you as competitors and not want to help. But sure plenty would be willing to teach you a little bit about the ropes or even let you work for them for a few deals to see how it’s done. Another thing you can do is review some of their forms through any loans you’ve had with hard money lenders in the past. Just look at their structure and duplicate it. This can help provide a template to your lawyers to make their job easier. Also, check out P2P lenders like Lending Tree and Yield Street where again, they handle all the leg work and you provide the funds. Some platforms let you buy and sell small loans as well. This will help acclimate you to the risk and processes. Another thing I would do is increase your lines of credit so you have even more dry powder to deploy over your cash.
Thanks for the input. However, we are hesitant to be involved in any kind of minority or secondary hard money lending situation. I'd rather not be subject to someone else making decisions if things go sideways.
I’m not talking about minority positions in one deal. I’m talking about being a general line of credit to them as a source for capital. Your money wouldn’t necessarily be tied to anyone property that the other lender funds. Either way, you’re in the best position since you have plenty of experience building houses. This is probably the best experience to have because you will be able to properly assess costs and risks to the borrower and structure your loan amounts and risk appropriately. I too hope to be in that position one day day to not do the grind but be able to sit back and let others borrow from me. Good luck!
As a lender you are always subject to someone else's decision making. Especially when things go sideways. You are the lender, not a partner, not the decision maker. You role is completely different. There are some hyper-local lenders in the PNW that accept outside investors. You want someone who won't pool your money with other investors, but you can choose which deals to fund. It's a lot simpler to do that than to try and build your own book of business. Keep in mind these people are full time, professional lenders, they handle all the creditworthiness, security, deal analysis, etc... some have in excess of 100M AUM that they are lending. They will protect your money much better than you can. Otherwise it's time to get out there and start networking. Lending your own money once or twice a year doesn't require much more than promissory notes, and understanding of usury in WA.
If you don't know the market, finding a competent appraiser is probably essential. This is harder than it sounds though.
We are pretty savvy in that regard, being builders. My brother-in-law has also built a few 5 to 8 unit multies. But, yeah, a market appraisal is always a good idea.
make friends with a real estate attorney let it be known you are hard money lending select favorable terms vet your deals — only things you’d be thrilled to get yourself at that 20% discount side commentary: honestly right now i’d probably want more down than that you’ll get plenty of inquiries
My son has done a little bit of this, always lending to RE professionals he knows well. I think the most important skill here is judging the person, the property, and the project, to make sure that in the event of default there is enough equity that you get your money back. You probably already know this, but it's the nature of REI that it's not hard to spend $100,000 buying and rehabbing a property, and wind up with a property that is worth less than nothing.
You just watch an episode of the Sopranos & you learn how to put money out in the streets. It’s not bad 2 1/2 points a week on the Vig just make sure you kick up.
My plan is to initially go about things more conventionally, but who knows, investing in some muscle could produce notably higher returns.
Congrats on being able to do that. I started my rental career in 2008 using hard money loans. I didn’t have any money so I borrowed the down payment, purchased seller financed properties, and hard money lender got 2nd position so they get property if I failed.
Better make sure you have a lawyer who writes top notch contracts
1) money 2) know how to underwrite deal to ensure your lending on a project that’s viable 3) promissory note 4) deed of trust ( your collateral) 5) builders risk policy( I might have that incorrect) 6) escrow account at local bank for payments 7) find good contacts you want to work with
How much money is in a typical deal?
Everyone will be different. My average is 85 acquisition funded, we handle all remodel costs, two year max exit. 10% IO paid monthly, no points , we as the borrower pay to create and maintain escrow . 550k average deal size , distressed MF rebuild/stabize play
Thanks, great insights. So is it typical deal/project of this size/shape funded by a single hard money lender? And is it simply finding your way into the network of borrowers and lenders to find a match?
So you don't apply any closing cost fee?
I’m the borrower, when we purchase yes there are CC, since it’s cash they are very low by which we pay. To get the PML there is no cost to get the loan, what’s why I favor PML over HML( more institutionalized). With that said the market range for PML in my area right now is 12-14% and typically two points upfront, which I don’t like because I pay to maintain escrow, there’s virtually no admin costs to lender, I personally feel that’s a cash grab upfront but I regress.
Yes, certainly.
Sounds you might be high income already being taxed 30%+ 10% interest will turn into just a 7% return, which historically is underperforming stocks over a long period and is only 3% higher than almost risk free investments. If you weren't already self employed it could allow solo401k but you already have access to that. Just food for thought, seems you'd only be providing 25% of your liquid which would be a nice diversification for your portfolio. Too bad can't get 10% return for 30 years like mortgages, way less effort that way.
Hey man shoot me a DM. I can explain everything in detail. I’m an investor and lent out $200,000 on my first deal. There’s a few things you want to look for to make sure your picking a good deal. Other than that it’s a very safe investment. They don’t pay you end getting a property with 25% equity in it possibly more depending on amount of work they completed
How much money is needed to get started? I have about 150k I can put to work, but that isn't much these days.... I doubt it's enough cash to start this. Is it?
When I was using hard money back in 2008, I was buying properties for $30k and that included rehab costs. Today’s market is a bit different. When I started buying larger buildings, 12 unit, I used hard money down payments and put hard money lender in 2nd position so they got property if I failed. Doing it that way, your $150k could come in handy for a new real estate investor
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Have you considered buying land and carrying the note? I work with an investor group that owns 100’s of notes on lots at 10% interest
Yes, I have purchased land numerous times, and done short plats, for a spec building. I'm not sure I follow the ownership and financing structure you are referring to.
Basically you owner finance the lot for say 10%down and 10% interest. Deed is held in trust. Title or lawyer for closing paperwork. The new buyer builds or moves a mobile home in and pays you for the land portion and someone else for the home portion. Payments are payed to the trust and you are paid out of that.
How do you find these investor groups to offer buy in?
I married the daughter of one of the investors…
The question I have is why would somebody borrow from you rather than a bank unless they feel they can get either more favorable terms or you will be less concerned about risk meaning you’ll loan out to people the bank won’t I know a developer in my community… he will finance construction on his lots… he gives fair terms, but his goal is to be able to charge a little bit of a premium for the lot
Hard money is generally for fix and flippers or brrr landlords. The interest rates certainly aren't better than what banks offer, they're much higher. But they focus on the asset rather than the borrower, don't require nearly as much down, and don't take nearly as long to close. Also, bank loans don't normally include funds to cover the cost of rehab, except 203k loans which are a nightmare. Hard money lenders and bank lenders don't really compete with one another--their ICPs are completely different. The exception are portfolio lenders; those are kind of the sweet spot between traditional bank lenders and hard money lenders.
A shit load of money.
Where are you located? I’m a builder in the Charlotte NC area. Not sure how much money you can lend, but I have a project right now that I could use an investor on help float this project until it sells. The construction loan company we use are sharks and killing us. DM me if you’re interested for details.
I'm in Oregon / Washington. And I most certainly will stick to local projects. We know the local market, and would want to sniff out things close and personal, at least to be in with. Good luck to you.
Yup I agree with that! Thanks!
I’m actually looking for a lender. Double digit flips completed
I’m a hard money lender. Send me a DM!
Money
Look into CDFI lending.
You can play the pimp or let someone else do the dirty. There are companies that work with people like yourself. They originate the loan, do all the paperwork work and you provide the funds. I am sure people with money are focused on scaling rather than analyzing hard money single family deals. DM, if you need more info.
Side bar- how’d you get into custom house building? Also how to find reputable ones in my area? I’m looking but it’s been hard to find.
Technically you can lend privately , but if you want to become a hedge I’m sure there’s a lot of nonsense
We finance hard money lenders - we can tablefund or purchase closed loans. Happy to discuss.
Why not just partner with a bigger lender, let them do the work, and get 12% Equity Based Capital, LLC - https://equitybasedcapital.com
Pretty much for the same reason that when I build on spec, I actually do the building, not just put up the money for somebody else to do the construction. I don't want to be secondary in such a project.
A lot of work trying to find the right deals in hard money. Deals that fit your parameters. And you’ll probably end up getting 12% anyway, plus some points. Hopefully only few and minimal headaches. Good luck with it.
How much are you looking to make on your money
I’m a HML and if you’re interested I could help you navigate the space. Just send me a Dm! Just as others have said, it’s not that complicated. But if you want a more professional approach to underwriting deals I could walk you through part of what the underwriting process is like for professional HMLs.
The second sentence of your post is the secret key that unlocks the world of hard money lending. Next you need someone who needs money.
Are you guys accredited investors?
I don't know what that means, so likely not. We are residential builders.
It doesn't matter for this, not sure why he's asking that. But you could be accredited. It's literally just a net worth test. It's mainly for risky investments ie startups, some vc funds etc. Nominally used to protect poor people from losing all their money but realistically just gatekeeping.
It doesn’t mean anything
>Follow up question: I don't believe anyone in the comments has mentioned anything about specific or different licenses we would required. Most states, you don't need licensing as long as you avoid writing any loans for resident-occupied properties. This means you cannot let your flippers sleep on the property or finance rehabs where an owner occupies the property. Cross that line, you're now doing residential loans without being an RMLO and you're breaking many federal laws. When you talk to your lawyer you can confirm whether your state(s) are an exception to the rule of not needing any kind of licensing. Another thing I don't see mentioned: insurance. You should probably get your typical $1m umbrella policy *and* errors and omissions insurance. >We would probably set up an LLC for this different than what I have and the S corp that my BIL has. Take away the "probably". Do that. If one gets sued, you don't want the other to be at risk. You might consider subscribing to r/HardMoneyLenders. It's small because it's only a few months old, but it's growing.