Hardmoney Lending Questions that I couldn't find on older posts

[Daniel Saunders]

Hi All,

I am trying to get into hard money lending. I unfortunately don't have the money to do it on my own but thankfully I have a partner that is ready to jump in. My main question is I know in order to be really successful at this you need to sell the loan back to the bank. If we can't, we will only be able to make a few loans a year. I don't really know how to go about doing this. We would like it to look like it is all being managed through us. I.E. when they get the payments automatically drafted from their account it will still say our name even though "so and so bank" is actually pulling the funds. 

The hardmoney guy I use now for my flips does this but I am not really comfortable asking him all the details of his business since I would be a minor competitor of his.

I have everything else pretty much in order. I have the lawyer lining things up and I know how to evaluate deals and assess risk.

Thanks all!

[Jeff S.]

There are many options available to you, @Daniel Saunders :

• Sell your notes to other investors, not banks. Buying performing notes from other HML's is one way others get into this business. Here, you would typically keep the points and sell the undiscounted notes.
• Fractionalize your loans. That is, organize several investors to invest in one loan, putting all their names on the note with their percent interest. In this case, they would all share the same position. This is legal in many states but may not be legal in yours.
• Hypothecate your loans. Here, you would make a loan with your own money and use the note as collateral to borrow additional money. You would keep the points and could even take a cut of the interest. This would be repeated for each new loan you make.
• Form a mortgage pool. This typically involves a syndication and the associated SEC registration.

A good lending and securities attorney (which is not a real estate attorney) should be able to explain these to you, set everything up, and help you stay compliant with all state and federal laws.  I would also talk to your existing lender.  This should not threaten him.  Perhaps he needs a partner? Good luck, Daniel.