Think-Realty-Magazine-July-August-2016

How to Evaluate a Hard Money Lender

Answers to Your Most-Asked Questions

by Brandon Walters

A trusted and well-established hard money lending firm can be a vital ac- cessory in a real estate investor’s circle of business associates. Hard money lenders have the ability to fund real estate transac- tions quickly (as soon as the next day) and can provide financing for real estate projects when banks and other institu- tions aren’t able or take too long. FLEXIBLE LENDING GUIDELINES Hard money lending firms are owned and/or funded by private investors and with private money. This gives hard money lenders much more flexibility in lending guidelines, as they’re not funded by gov- ernment-sponsored funds. For this reason, hard money lenders have the flexibility and autonomy to structure a loan that fits your or your client’s needs. TYPES OF HARD MONEY LENDERS Under the umbrella of hard money lend- ing, there are two main types of lenders: BROKERS: A hard money lending broker acts as an administrator between inves- tors and borrowers. A broker organizes the consolidation of available funds from investors, assesses and analyzes potential borrowers and their proposed collateral, oversees distribution of lending funds, and at times services loans as well. Lastly, there’s no assurance the broker will secure funds from an investor. DIRECT LENDERS: Whereas brokers provide the service of partnering private investors with borrowers, direct lenders possess their own money for potential borrowers. This “hands on” lending ap-

proach not only provides more flexibility, but is often less expensive and creates a better environment with certainty for long-term business relationships between lenders and borrowers. TYPES OF PROPERTIES THAT CAN BE PURCHASED Each hard money lending company has different parameters regarding the different types of property on which it will lend money. Some of the more common types include: Commercial Property: Commercial property can include apartments, an office building, hotel, retail building, industrial building, storage facility, etc, whether occupied or vacant. Non-Owner-Occupied Homes: Clients looking to enter into the real estate investment business through traditional lending avenues will often find that high down payments, low debt-to-income ratios and pristine credit records are often required, along with stringent underwrit- ing that slows down the funding time. Hard money lenders can help clients close on single-family homes by using flexible lending standards with which to approve loans and by funding loans much faster than traditional lending sources can. Land Loans: Often, traditional lending sources won’t finance land, but many hard money lenders can provide financing for

are not. How can real estate investors know whether the hard money lender they are considering using is a viable lender? Here are some questions to ask: How long has the lender been in busi- ness? Longevity is important in the hard money lending business. Therefore, it is wise to choose a hard money lending firm that has proven itself over time. An established hard money lending company will have sufficient experience to quickly underwrite and structure a loan that fits your specific needs. Also, you want a well-established hard money lender that will be in business to service your real estate loan now and to fund new projects for you in the future.

your real estate land purchase. HOW TO CHOOSE A LENDER

As with any profession, some hard money lending firms are reputable, while others

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