How to become a Hard Money Lender

[Sam Stout]

Hey there,

     I am interested in becoming a Hard Money Lender because I just don't have time to manage rentals and all that.  Does anyone on here know of some reputable contacts which could get me good rates on my money if I put it up for hard money loans?  How does this process work?  I have roughly 300-500k to lend, I'd prefer 10 years notes, with monthly payments.  

Thanks!

[Matt Rosen]

Great topic that I love to talk about. The process of becoming a private money lender can be extensive, but here are a few things off the top that come to mind.

Few ways to go about this. 

1. You could simply invest your money into a performing fund and receive your dividend yield per quarter/month or year. By rolling in $100k, earning 9% per quarter, thats $2,250 every 3 months, plus you learn the industry as you go.

2. You can pool investor capital together and create a fund. This fund depending on the type of offering can be used either for lending purposes or your own fix and flips or whatever your investing in.

To create a fund you must have a strong foundation. That means hiring a top notch attorney to create the private placement memorandum, operating agreement, and subscription agreement. Depending on the size of fund, you can setup a fund that attracts only accredited investors or non accredited. 

To minimize risk, first thing is the foundational docs, second is to be an absolute machine in underwriting. Look for reasons why this deal wont work. Underwrite the borrower, as well as the property via a BPO. Make sure you the sufficient hazard insurance in place, and the entire loan process is well explained to your borrower. Know the foreclosure laws in your state whether they are Judicial or non judicial so you have your exit strategy clear if things go south. Which is why your numbers should be spot on. If you do not want to eventually own the property, do not loan on it.

This isnt the summary of the business...just a couple thoughts

hope it helps