I hate to have to bring this topic up.
Normally I would leave the issue alone and just let the sleazeballs be sleazeballs, but investors I talk to keep getting taken advantage of by hard money scams and rip offs.
The Good News: REIs overall are getting sharper all the time. The Bad News: so are the scamalicious hard money loan companies . . .
I wrote this post to answer questions I get from investors about the shady and confusing practices used by some of the hard money lender companies out there.
Below are my tips for how to tell if a hard money lender is legit, a scam or a rip off.
3 Signs It’s a Hard Money Scam
A hard money scam company will attract hopeful investors with rates and lending practices that sound too good to be true.
To easily spot a rip off, ask yourself these three questions about a lender:
Question 1: Are their rates waaaaay too low?
First of all, if a hard money lender doesn’t clearly post their rates, run.
That being said, interest rates on a hard money loan should be between about 12% and 18%. In cases where the investor has really good credit, you might see rates as low as 10%.
BUT if you see rates lower than 10% – 12%, that lender probably makes its money through hidden costs, fees or through an outright scam operation.
Question 2: Do they approve loans WITHOUT evaluating the property?
Legitimate hard money lenders will assess the risk involved in a loan before finalizing the loan approval. They usually do this by performing:
- a thorough analysis of all of the loan application details (which takes a couple of days), as well as
- a physical evaluation of the investment property
Because hard money lenders are already lending in higher-risk situations that traditional lenders won’t touch, it would be insane for a real lender to give money to people without first doing their own homework on the deal.
So if a hard money lender approves your loan without some kind of analysis or evaluation of the subject property . . . something is seriously fishy.
Question 3: Do they claim they will fund ANYTHING?
An honest hard money lender will always have to turn away applications for deals that look too risky. That’s just the way it is.
Rip off lenders try to lure investors with outrageous claims that they will fund every deal.
The DoHardMoney website says “Every Good Deal Gets Funded Guaranteed.” And that’s exactly what we mean, every good deal.
3 Signs a Lender is Legit
I’ll make these ones fast.
1. BBB Accredited
- A company is either accredited with the Better Business Bureau or it’s not. Businesses have to earn these accreditations. They are not handed out lightly.
- You can look up a company’s BBB status on the BBB website. For example, you can view the DoHardMoney.com BBB page here.
2. Customer Reviews and Testimonials
- When hard money lenders do their jobs right, they help investors make money. I don’t know if you’ve noticed, but helping people make money makes them very happy.
- So you can expect that a good hard money lender will have lots of positive customer reviews and testimonials on display.
- You can see DoHardMoney customer reviews here.
3. Responds to Customer Complaints
- Anyone who has ever owned a business knows that even the best businesses will have the occasional dissatisfied customer or negative review. As they say, “You can’t please all the people all the time.”
- However, how a company addresses complaints will tell you a lot about how they do business.
- A hard money scam company would mostly likely completely avoid addressing online complaints.
- Legitimate hard money lenders will personally address each online complaint or negative customer review with care and will do everything possible to reach a resolution.
My Reasons for This
You might be wondering, “Why would you be teaching me how to look at other hard money lenders, Ryan? Aren’t you a hard money lender yourself?” Good questions.
First of all, there are a number of reasons why a hard money loan with DoHardMoney might not work for every investor. We get that. We don’t lend directly in every state, and, like I talked about above, we may have to turn down a deal if it doesn’t measure up to our standards.
DoHardMoney.com’s mission encompasses more than just funding deals for investors. We’re here to help investors be successful any way we can, whether through information, REI coaching or other investing tools.
If you can’t get a loan through us, I want you to get your loan safely and avoid the scam companies. Maybe we’ll be able to fund you on another deal down the road.
But, of course, I’d love it even more if I could fund you on your deal now rather than later. If you’re interested, Click the Button below to Get Pre-Qualified.
To Your Success!
Ryan G. Wright