How to find Hard Money Lenders for Real Estate

Real Estate Equity

In today's credit market for purchasing investment real estate a hard money lender is often the best option to finance a short term investment property.

Things You'll Need

• Contacts
• a project with equity

Instructions

1. Basically the term hard money refers to loans made on real estate outside of the normal bank and finance channels. Hard money lenders are most often private individuals or a small venture capital type group of lenders. Often they have made their own money buying and selling real estate and now work investing in other projects to keep their capital working. Some lend from their self directed IRA's or pension funds.

2. 

   Hard money is generally meant to be short term. Normally 1 year or less and sometimes even just a loan for a day or 2. Hard money can charge points, a point is 1% of the loan amount, or an interest rate. Often their is a combination of the 2. I typically pay 5% as a fee up front and 12% to 18% annual interest depending on the deal.

3. Hard money is typically used for a real estate investment that has good equity and either needs to be funded quickly or does not qualify for conventional financing. Often the property is a bargain but the borrower does not have enough cash and credit to get a bank to lend on the deal. I have even had people buying for their own residence and need hard money as a bridge loan so they could close a deal before a deadline. A few days later permanent financing was in place to pay off the hard money lenders.

4. The best place to find a hard money lender is through a real estate investing club. Most cities and even some rural areas have real estate investing groups that meet weekly or monthly to network. Hard money lenders often attend these groups or the investors who attend have connections to hard money lenders.

5. Network with any other real estate investor you know. hey often know the hard money lenders. Even investors with their own money and good credit often turn to a hard money lender if several real estate deals come available at the same time. It is better to pay a high rate and make a smaller profit that turn down an easy deal.

6. Another good place to find hard money lenders is through the small business banker at a local bank branch. Business bankers have connections to non traditional lenders so they can help out their small business accounts with a type of loan they don't offer. They would rather do the business owner a favor than not be able to help them and lose business to someone who will.

7. A great source of hard money is finding individuals who have a large self directed retirement program. A self directed Roth IRA account or similar tax deferred account can often invest in real estate. You provide them with a better return than they can get elsewhere and they fund your real estate. Be aware of the guidelines and be able to meet time frames and terms fully so they are within the bounds set for their IRA or other account and don't lose the tax benefits. They will have an administrator that can help review the loan terms with you.

Tips & Warnings

• With any hard money loan make sure you have a good plan to resale the property. Run all your numbers on worst case examples. If it still makes sense then proceed.