private and hard money lenders

[Lelith Walker]

How do you evaluate a hard money or private money lender?

[Eric Loya]

@Lelith Walker First thing to understand is that hard money and private money are like apples and oranges, two completely different beasts. Hard money is easier to secure, and can be found simply by searching the Internet. Private Money is a relationship driven connection with an individual willing to lend their personal funds for your real estate endeavors. These people can be found at local real estate investor clubs and meetings.

When evaluating hard money, you should focus on 4 aspects. Keep in mind the costs are much different if you decide to fix and flip, or buy and hold - so knowing this exit strategy ahead of a conversation with a lender will make life easier for both parties.

Here's what you should ask:

1) What are your rates, and how are they calculated?

- usually hard money will offer between 7-12% with lower rates offered to those with more experience, better credit, and more capital contributed to the deal.

2) What are your LTV's, (loan to value) and do you lend based % on resale value or purchase price?

- most lenders will lend between 65-75% of the resale value, and may offer a variation such as 80-90% of purchase price including or excluding rehab costs up to 100%. Each lender is different, so this is an important question to ask.

3) What are the origination costs, and other "junk" fees?

- you can expect between 1-5% as an origination fee - also known as points. Other fees may include appraisal, processing, application, etc - so it's good to know these details up front before you decide on a lender based on interest rate alone.

4) What do I need to qualify?

- lenders may require a business entity in order to secure lending, some may not. All lenders will want to verify proof of down payment, closings costs, and a variation of monthly interest reserve (3-6 months). Some may require a minimum credit requirement and even US citizenship.

This should help you with understanding hard money. Message me if you have questions regarding private money, I don't want to write another full-blown essay on this topic ;)