I'm confused on how this hard money lender thing works?

[Jessie Creighton]

Hi all, I'm looking to find my first flip in windham Maine area, and found a great agent. I need to have financing lined up before making any offers I'm told, but it was my understanding that hard lenders need the deal info before I can apply. Isn't that a catch 22? Anyone have advice on a good hard money lender and how to get pre-approved before actually finding the deal? Or do you find the deal and scramble to get financing before you can make the offer? I have been pre-approved for a line of credit but that's just the supplementary financing for whatever isn't covered.

[Lawrence E. Hopkins]

@Jessie Creighton

Most reputable hard money lenders will provide you with a professional pre-approval and/or proof of funds letter similar to a traditional mortgage company.   

[Chinmay J.]

Originally posted by @Jessie Creighton:

Hi all, I'm looking to find my first flip in windham Maine area, and found a great agent. I need to have financing lined up before making any offers I'm told, but it was my understanding that hard lenders need the deal info before I can apply. Isn't that a catch 22? Anyone have advice on a good hard money lender and how to get pre-approved before actually finding the deal? Or do you find the deal and scramble to get financing before you can make the offer? I have been pre-approved for a line of credit but that's just the supplementary financing for whatever isn't covered.

Yes, you can get a contingent commitment letter from HML and submit that with the offer, but you need to find the DEAL first. The HML will look at the deal and see if they want to approve it or not. Its always good to make an offer with the commitment letter. Tells the seller you are serious. Since its asset based financing, your credit worthiness matters to much lesser extent than when getting traditional financing.

[Matt Shields]

Unlike traditional mortgage lenders, hard money lenders are like commercial lenders, they lend based on the property's value and the deals numbers, unlike a mortgage lender who looks at property value but is primarily lending to your income, credit, and history. Some hard money lenders do consider income/credit, but none has ever asked for mine.

Think of hard money like a pawnshop. You need short-term money now. The pawnshop doesn't care about who you are, just what the item is worth, and can they get their money out of it if you default.

So it is difficult for a hard money lender to give a blanket pre-approval letter without property, although after you have completed a few loans on time and earned their trust, I could see a hard money lender providing this. Remember that they are all different and range from large companies with thousands of loans to the guy on craigslist.

Before I purchase a property, I explain my general business model to the lender, make sure that it is something that they are interested in and they have the funds needed. I also keep a couple of lenders in the on-deck circle just in case the primary craps out. Once you find a deal a hard money lender should be able to react quickly getting you a pre-approval letter and funding. I have money within 24 hours. Good luck.

[Matthew Wright]

@Jessie Creighton 

Call Ryan Cyr at Lincoln Capital. He was my lender for a recent Windham flip I did. Theyre out of Portland, on Forest Ave. 

[Carson Wilcox]

The thing about HML is they really like to get relationships going and serve you multiple times... they spend the $ to find you as a customer, to back ground you etc... once you are good they want you...

[Peter Aldrich]

@Jessie Creighton and @Matthew Wright

Jessie - I agree with the comments made so far.  Most HMLs will provide a contingent commitment letter or similar documentation that you can submit with your offer.  Best to meet with a few of them to explain who you are and the type of property you are looking for, so when the time comes, they are familiar with you and can move quick.

Jessie and Matt - I am always looking to connect with local investor.  Also, I lend on deals through my company, Sawyer Street Capital.  PM me if you want to connect or discuss a specific deal.

[Ed Emmons]

Hard money is risky and expensive when you’re starting out because you really need to know your numbers and timeframes. On your first deal it is unlikely you know those unless you have a lot of contracting experience or really know your market. You need to know with a measure of certainty the price point where you will get immediate offers. You also need to have more of a margin as Time is against you and it again it is expensive.

In Maine and I suspect most of the country, real estates have an obligation to present all offers regardless of your circumstances or the price. That being said you want to keep a good relationship with your agents so you don’t want to waste their time so make sure you can buy what you offer on.

I personally have never used hard money although when I started I bought a dozen properties without my own money. You state in your profile that you are goal oriented so you might consider finding some private investors locally. If there is a local real estate investors group, join it. I would suspect that there are some seasoned investors that would be glad to offer money on better terms than hard money. It would also be very valuable to you to get some input about different projects that you are looking at.

There are many using hard money successfully but there are many who have ruined themselves financially from it. You want your first project to be a winner.

[Rob Milliken]

I agree with many of the comments made here. I always am looking for funding from different avenues just because I want to make sure there is money available for our transactions.

I have used Ryan Cyr at Lincoln Capital. We have been extremely pleased with that Company. Rates are lower than many Hard Money lenders. A property I have financed with them is about to close. We will be using them again.

I typically do quite a bit of Owner Financing and Private money as well. Of course PML are typically less expensive and typically a little more laid back than HML.