How can I use real estate as collateral?

[Chris Coon]

Hi, I am just getting started in real estate investing and looking for advice on how to fund deals creatively. I would like to know what it would take for a private lender or hard money lender to fund a deal while using the property itself as collateral for the loan. Is this possible? 

If so, what is the correct way to approach a lender? What kind of terms and conditions for the loan should I expect? What unforeseen risks could I run into?

Thanks in advance for the advice!

[Erik W.]

The "hard" part of hard money lending is the collateral: the property.  It doesn't mean they are mean people or will send over a guy named Guido to break your legs if you fail to pay....although in some cities there may be a few like that.

Hard money is also expensive, short-term money. They will typically charge between 7 - 12% APR plus up front points between 3 - 5% of loan amount AND they'll have a short payback term (6-12 months) that sometimes come with prepayment penalties.

Almost anyone who lends money on real estate will require the property itself as collateral.  Goes with the territory.  There are a VERY FEW exceptions to that which will come after you've built a portfolio and/or a reputation as someone who knows what they are doing.  Don't hold your breath, that can take time.  

I recommend you save up $10,000 so you can show the lender that you have discipline to achieve a financial goal, even if you lack real estate experience.  Discipline goes a long way to building trust.