Hard Money Lenders-Are they for real?

[Toyin Dawodu]

I get at least one call a day from the new "hard money lenders"  These are semi institutional lenders pretending to be hard money lenders.  

When I ask for their requirements, it always sounds like I am talking to Bank of America or Wells Fargo and I am trying to pull a Fannie Mae loan.  

I just got a package from one of those "so called big ones" the newbies in the market of hard money lending. Their requests almost included my first born child. 

Since when did hard money lending become giving up an arm and a leg. What happened to the word asset backed lending? Is it just me or is anyone having the same issues? 

HOW LONG DOES IT TAKE TO MAKE A BUY DECISION ON A HOUSE?

As a property investor, when I go to meet a seller, I have to make a decision on value and give the seller an offer immediately. If not, the next guy probably will. When I call hard money lenders, they tell me it will take them 10 days or two weeks to make the same decision. 

Has anyone found out lately that even when you present a 50-60% purchase price of ARV to one of these lenders, they still ask you if you have skin in the game?

Then they make you fill out all these elaborate information online, only to tell you later their loan committee did not approve the loan. 

I am glad, I have my private lenders. One phone call and email of the property with comps, my docs are on their way to escrow.

Is anyone still using these pretend "hard money lenders" or should you be looking for private lenders who can make commonsense property value decisions?

If you are new to property investing, you will probably be better off to find a private lender, who has some money to invest. 

START A RELATIONSHIP 

Let the private lender test you out with a small loan. Then gradually increase it.

That was how I started years back. My private lender, first loaned me $30,000. After seeing my performances over time, he gradually increased it.

What I like best about our relationship is the speed of performance. Unlike so called hard money lenders, I don't have to wait for ten days for a decision. I usually get one in hours.

That is the speed at which profits are made in this business. The last deal I made, a few months ago, my competitor told the seller he will need a few days to decide on the purchase price.  When I got to the house, I made a decision immediately.  The seller even thanked me. They flew into town to sell their property. It was a probate deal. They needed a decision so they can fly back home on Sunday. 

Imagine, If I had to wait for the "hard money lender"? 

I called my private lender and he saw the value. I opened escrow the next day and in five days we were done.  100% financing including all the rehab, no hold backs. 

SIMPLE DECISION-MADE HARD

To me the decision was a no brainier. After repair value for the house, (ARV) was $325K in a very nice part of town. My offer was $205k net to seller. Fix up cost was about $15K My private lender came through with $225K loan.

I did give some of the hard money lenders a chance, but their term sheets were terrible. Plus, they wanted to do an appraisal and it would have taken 10-15 days for an answer. 

I got terms like, "70% of purchase price, plus 90% of rehab, and we'll have to hold the money until you do the repairs."

Based on their term sheets, they will be advancing about $143,500 and holding back the $13,500 repair costs.

I would have had to come up with about $80,000 just to take the deal down.  This is one of the reasons most newbies are having problems getting traction in this business.

So the question is "hard money lender or a private lender? Which is a better choice?