Questions for Private / Hard money Brokers

[Account Closed]

Any advice or insight on the below is much appreciated!

1) What separates your preferred lender or source of funds from the competition? i.e. what makes them the best option for your client and what are your expectations in terms of service, process, etc.

2) BiggerPockets and local REIAs are great places to find clients. What other creative ways or platforms do you use to source new clients in need of funding for their investments?

Thanks!

[Jeff S.]

Like most businesses, it's all about developing a competitive advantage, @Account Closed .  Conventional loans, which must follow the rules provided by the GFE's, at minimum, are all but commodity items. I'm glad we don't do these because I have no idea how these lenders manage to compete. Private loans, which are as varied as fingerprints, allow lenders to develop many competitive advantages so long as they stay within the law.

In our experience, first and far far far above all, is having a personal relationship with your borrowers. Isn't this true in almost all aspects of business? This all but precludes lending to out-of-state strangers or finding your borrowers online as you suggest, unless they also happen to be local to you. That is, I completely disagree that BP is a great way to meet borrowers -- at least safe borrowers -- and vise versa.

It's my observation that many lenders come on strong here and then disappear, presumably when they realize how little business actually gets done online this way. In my view, real estate clubs are the most efficient way to go. Here you'll find the greatest concentration of serious borrowers at one time and the opportunity to begin a face-to-face relationship then and there. Even better, start your own real estate club, but don't try to be all things to all people.

We completely focus on long-term, professional flippers who do many deals at a time. No newbies or hobbyists. If you don't eat if you don't flip, you must find your money elsewhere. Since most lenders in an area will remain cost competitive, a percent or point one way or another is unlikely to sway someone doing many deals at once. That is, don't compete on price. There is no reason to do any better than meet the local market on your rates. Honesty goes without saying, but what active flippers value is reliability, consistency, speed, and as much money as they can humanly get per deal.

Active flippers eventually run out of money and look for a highest LTV loans they can find. (And, don't think that they can't find 100% loans or first and seconds that add up to 100%. I smile when I read posts here that say these loans don't exist.) Since cash flow is king, letting them defer as many costs and payments as you can stand, until they sell, will provide a competitive advantage for you. It's your job to develop lending criteria that ensures they buy at as low a cost as possible so that you're both always safe if something goes wrong. Reliability and speed are the other issues.

Keeping your money at work is the name of the game in the lending business, and some lenders overpromise and then can't deliver when it comes time to close. This is not limited to small lenders. I can name several large local well-known HML's who've pulled this crap, screwing borrowers we know at the last minute. The excuses are laughable (didn't realize the garage wasn't attached was the most memorable). The solution is crazy easy; never promise money you don't have in the bank. With money in hand, it's also easy to close very quickly if you already know your borrower (i.e. the relationship) – like in a few days. Borrowers appreciate 100% reliability and quick closing. It enables them to safely make aggressive offers. These are easy competitive advantages to develop, though it takes time to build a reputation of 100% reliability.

Last is consistency. Rather than wondering if a particular deal will involve a 10%/4 point loan or 12% and 1 point, borrowers are more inclined to call if they know the loan terms in advance. One interest rate and one origination fee rate, stated up front, takes all the guesswork out when they make an offer on a property. So long as you're lending on a consistent property type, say 1 to 4 unit flips, these should be easy to price. And for heaven's sake, never change this after you've struck a deal or nickel and dime your borrowers to death with junk fees. Borrowers have long memories. You don't need that reputation.

Hope this helps, Bronson.