Know The Difference Between a Hard Money Lender, a Hard Money Bro

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Know The Difference Between a Hard Money Lender, a Hard Money Broker and A Fee Collector!

Like all industries, our great industry of hard money loans have great people and associations, and we also have the bad apples. Unfortunately, the bad apples ruin our industry’s name and reputation. To start off, please note that a large majority of hard money lenders throughout America are honest, hard working individuals who manage private equity for private investors, and distribute those private equity funds to worthwhile real estate ventures, usually on a local basis, but with the current internet era, often Nationwide. Hard money lenders take calculated risks and strive to consistently make money for their equity investors. Here is a basic breakdown of individuals you will most likely deal with on this platform or other online platforms – and you can make a decision who is the scammer and who is not.

A) Hard Money Lenders

These are individuals and companies who manage capital, either their own, and mostly other private investors’s. Their main job is to manage and grow their client’s investments by placing the capital in quality real estate backed investments. The funds are usually short term – 6-18 months. Hard money lenders charge origination points, which are % of the loan amount, along with the interest rate and other out of pocket costs, such as legal fees, property inspection/appraisal, etc.

B) Hard Money Brokers

You as a real estate investor are usually very busy acquiring, managing and growing your real estate empire. As a real estate entrepreneur, you (should) have a team of trusted trades, such as kitchen/bath pros, flooring, roofing, electrical, etc. as well as trusted consultants, such as accountant, attorney, mentors, etc. One of those is usually a hard money broker. Brokers are your go-to money guys and gals who have an ongoing, long standing relationship with private and hard money lenders. They will go above and beyond to guide you towards offering you the best funding options and making the best decisions for your deals. Hard money brokers are essential for connecting and lenders, we are essential to the deal flow on both directions. A (legitimate) broker should never ask for upfront fees. We get paid, if and when the deal goes through and you get funded. There is absolutely nothing wrong with working with a hard money broker, the same way you would work with any other broker. …Then there are the Fee Collectors…

C) Fee Collectors

These individuals make most of their money by collecting upfront fees in the form of application fees, analysis fees, evaluation fess, preliminary underwriting fees, etc. etc. They don’s make money on providing you with loans, and unfortunately they prey on desperate investors who are out of options. Do your due diligence! In conclusion, the only fees you should pay are once you have received a Letter of Intent of an actual Term Sheet outlining the exact costs and breakdown of your loan. Items such as legal fees, origination fees (points), interest rate and other essential information should be clearly outlined. The out of pocket fees will go towards appraisal, legal fees, and other clearly stated items, which generally should not exceed $1000.00 on the high end. 

To Your Success!