Hard Money Lenders.....

[Don Hines]

My research into NPN's had sparked an interest in being a hard money lender using SDIRA. I know the mechanics. But, I really don't know what I don't know. Thought I would start a conversation and see how bad @Bill Gulley will beat me up in this forum.

Don

[Ann Bellamy]

Well, I won't beat you up, but Bill might beat me up.

Here are some starting points:

1.  Do a search on BP on threads about becoming a hard money lender or becoming a hard money lender.  One of the biggest things we emphasize the most if getting an attorney who has significant experience closing loans for private or hard money lenders.  Why?  Because the laws are different?  No.  Because most closing attorneys are used to dealing with institutional lenders who provide their own loan docs and who are licensed in the appropriate states.  They are not accustomed to advising their lending clients on the SAFE Act, Dodd Frank, licensing on residential loans, what constititutes a residential loan, usury laws, SEC considerations for advertising, etc.  Call the local hard money lenders in your state or the state where you want to do business and ask them for the name of their closing attorney.  Don't assume a regular real estate attorney is well versed in these issues.  The attorneys who do lots of work for hard money lenders are few and far between, but they do exist, and they frequently specialize in real estate investor and hard money and creative transactions.  It will make your life easier.

2.  Don't lend if you don't know the market in the area you choose to lend in.  Hard money lending is all about the real estate market, valuing the property, knowing the neighborhoods, how you can liquidate a property if the deal crashes and burns, and the experience and integrity of the borrower.  Not to mention his stake in the deal.  You won't have time for an appraisal, and frankly, we've seen what happened to appraised values in the crash.  

3. Leave cushion in your IRA to cover foreclosure should it become necessary.

 And now some of my personal rules, others may disagree with me on these:  

4.  Never take a second position

5.  Never refinance out another hard money lender

6.  Never do a deal where the borrower is trying to something that's not totally on the up and up.  You may not be doing anything wrong, but if it goes bad, the courts will assume the worst about a hard money lender.  

7.  Never do a deal that flirts with being residential.  

I'm sure others will chime in