When it comes to real estate investments, success comes with being as educated as possible about the fix & flip process, including hard money lenders. But what if you’re just starting out? It can be tough to discern the difference between lenders who genuinely want to help you achieve success vs those who take the money and run. Do Hard Money is an investor’s advocate, here to help you weed out potential time and money wasters so that you can feel secure and confident in your investments. We’re providing a 5-step process below to help you determine if a lender is operating on fact or fiction. As you do your research to determine which loan company is best suited for your needs, you can follow these steps to ensure that you can easily avoid anyone who may not have your best interests in mind.
STEP #1: TERMINATE THE TIME-WASTERS
There are two ways you can cut to the chase in your search for reputable loan companies:
- You can do a google search for hard money lenders in your area, paying closer attention to those with higher ranking customer reviews.
- You can attend a local Real Estate Investment Club meeting. This will put you in touch with a network of many seasoned investors; odds are, they can recommend a fantastic loan company to you.
REMEMBER: Be sure that you compile a list of lenders who can lend in the state in which your property is located. It’s also very important to find a hard money lender which will work best for you. There are lenders which work better for seasoned rehabbing veterans (those with strict requirements but better interest rates) and other lenders which are more appropriate for the Real Estate beginner. Also, look at the details of the property you’re looking to rehab (is it high-end, or a duplex/four-plex?). Some lenders won’t lend on those kinds of properties. When you compile your list, make sure the hard money lender is a good fit for your experience level, property and what you’re looking to accomplish.
STEP #2: DO YOUR HOMEWORK
After compiling a list of lenders, do your RESEARCH. Always remember that this is your investment; your money. To make sure none of it is wasted, it’s essential to do your homework beforehand. Do a thorough background check—research their qualifications and reputation. You can also ask for references from the lenders’ clients and agents and follow up with them. Take a look at past and present customer comments and reviews. If a high number of complaints have been filed with the Better Business Bureau and if any of those complaints are unresolved, this can tell you a lot about a lender. To cut to the chase in your compilation of trustworthy lenders, you can also attend local real estate investment group meetings and ask for referrals regarding which lenders others have worked with and had a good experience.
STEP #3: TRUST THE SET-IN-STONE STANDARDS
One excellent way to weed out the lenders who deal in fantasy from the lenders who deal in reality is to look at the hard money lending industry standards. A trustworthy lender will stick closely with the industry standards, which have been tried and true with decades of experience to back them up. For example, legitimate lending companies will typically extend a loan of 50-70% of the ARV (after-repair value) on a property. If a hard money lender is willing to go to extremes from the standard to fund your loan, they’re most likely full of fiction. It’s the same story with other lenders who are willing to loan solely on your terms. The companies to trust are those who don’t hype themselves up with unsubstantiated promises. Trust the standard 50-70% loan on the ARV.
STEP #4: READ THE FINE PRINT
You can typically tell a less-than-legitimate loan company because they will “nickel and dime” you to death at the last minute. A lender who keeps the fine print at 1 pt font and in Chinese is the lender who doesn’t have your best interests in mind. Lenders on the up and up will always be up-front about their costs and fees. Before you get too involved with an investment deal, be sure to find out what the lenders will require from you. The best lenders will walk you through all fees, closing costs, 3rd party costs, taxes and pre-payment penalties, if any apply. Since it’s your investment, you need to know all of the details and a good lender will encourage your involvement and education regarding every cost or fee. If a loan company dances around the costs, evades questions, is impossible to get a hold of, or doesn’t let you see every detail of the deal, it typically means they have something to hide.
STEP #5: DON’T IGNORE WARNING SIGNS
Here are some big red flags to watch out for:
- Lenders which significantly stray from industry standards.
- Lenders who are willing to lend without a background check.
- Lenders who don’t have a proper/legitimate business website or office space.
- Lenders who will lend on any property whatsoever.
Legitimate lenders will protect you: they won’t lend on properties which won’t garner an estimated profit of at least $10,000. The better lenders will have tools and resources, such as deal analyzers which can help you determine any risk factors associated with deals you wish to rehab and which deals would be worth your investment. The best lenders don’t want you to waste your time and money. They will have your best interest in mind, rather than collecting interest from you. Whereas, worse dealers will lend on ANY deal, good or bad. A bad deal for you could still end up a good deal for them.
There you have it—we hope this sheds some light on the variety of lenders out there so you won’t ever have to waste your time or money. Do Hard Money is one of the top hard money lenders in the country because we put the needs and best interest of our clients as top priorities. If you’re looking to find a lucrative property or to get a rehab deal funded, DHM is a one-stop shop for all of your hard money needs. Just give us a call at 801-948-9774 or click on this link to schedule a time to chat with one of our associates. We look forward to hearing from you!