You’ve got a pretty good deal. Now, learn how to find a hard money lender! Learn about the 2 types of money, why you should get the property under contract first, and how to communicate with hard money lenders in order to get affordable rates.
What You Will Learn About How to Find a Hard Money Lender:
- What hard money is
- The 2 types of money
- “Bridge the gap” approach
- Why you should get the property under contract first
- The importance of knowing your deal
- How to communicate with hard money lenders in order to get affordable rates
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Speaker 1: This is the Theriault Media.
Matt Theriault: Hey, Matt here at Epic Real Estate. And today we’re going to talk about how to find a hard-money lender on today’s episode of Financial Freedom Friday.
All right. So how to find a hard-money lender. And I had this question back to back days from brand new students, from brand new students in our REIAs program. They’re both working a full-time job and they’re taking on real estate investing as a side hustle. And just yesterday one of them called me, said, “Hey, Matt, I got a pretty good deal. How do I find a hard-money lender now?” And today, this morning, another one called me says, “Hey, Matt, I got a pretty good deal, how do I find a hard-money lender.” So I’ll like, “Great.” So let’s go through that.
But first, let’s kind of go over what hard money really is, people who have a little bit of a misconception of what it actually is. So there’s really two types of money out there. So you’ve got … we’ll call this INST. There’s a short for institutional money, and there is … I’ll just make this abbreviation here relationship money, okay. So we’ve got institution money and relationship money.
So this institution, this is your banks, your savings, and loans, your credit unions, giant institutions that lend out money. And then you got relationship money, that’s exactly what it kind of sounds like. It’s friends and family. Okay. It’s your aunt Sally that’s looking to help you give you an upper hand or a helping hand to get started. Okay. So there’s your relationship money.
Now, the hard money is right here in the middle. Okay. And hard money is typically someone that was previously relationship money to somebody and saw the benefit in lending them money and kind of started to make a business out of it. So they kind of straddle the fence. They’re not quite a full institution although it could be in some scenarios, I guess, but they kind of sit here in the middle.
So an institutional money, it’s going to be more … much stricter guidelines, much tighter box to fit in before they’ll consider giving you the money. And a lot of it’s going to be based on you and your personal history as a person, as a human being, like your credit score, your credit history, and your recent … your past financial performance. Okay. So that institutes are going to look a lot at that.
Relationship money, they’re going to look a lot more on your character, it’s going to be a lot more flexible. You probably be able to negotiate a lot more over here so those terms are kind of set. So the hard money kind of gives you both of those. They’ve got some guidelines that they like to follow but you can create a relationship with hard money and you can create some flexibility in there as well. Okay. So understand, these are kind of the three different things, the three different scenarios out there.
So what do you use hard money for? Well, it’s typically a little bit more expensive money because it’s easier to get. There’s some more flexibility. They typically look more at the deal, the opportunity, whatever investment opportunity you’re bringing their way. They’re going to look more at that then they’re going to look at you as a person because they want to see that as long as the … they want to be secure more in a deal than really you because that’s going to be their collateral.
And then yeah, so it would be more for shorter-term money, so maybe three months, a three-month project, six-month project, maybe a year or two. So it’s more of a shorter term type financing until you can arrange longer-term financing for a longer term hold play maybe, or maybe it’s just going to be a fix and flip type thing so you need to acquire the property and you need some money to go and fix the property. And then what will be another thing? Oh, maybe like a bridge loan, I got to bridge the gap. You’ve got some of your own money, you got maybe some institutional money. Then you need some money to kind of bring the whole deal together. So that’s kind of the typical scenario. But it’s more expensive but a little bit easier to get so that’s the give and take part of the hard money.
So how do you find it? So, my two students, they both had these deals. And they said, “So how do I find hard money?” And I said, “Well, there’s a really simple way to do this.” Google. So I’m not going to leave you hanging there. But really, if you go to Google and say hard money near me, or hard money my city, you’re going to come up with pages and pages and pages, there’s tons of options out there. But before you do that, I want to make sure that you have a real advantage of getting the best rates and terms and getting good money for yourself.
So the first thing is I had asked them both, I said, “Do you have the deal under contract?” Get the deal under control and neither one of them did. I said, “Okay, before you go through all this work and you start Google hard-money lenders and asking them about their rates, and asking them how it works, get the deal under contract because you could do a lot of this work on Google and a lot of phone work, and then you go back to get the deal and then it’s no longer there. The seller sold it to someone else while you were trying to figure out your money situation. Don’t do that. Get the property under contract as soon as possible. And now when you call your hard-money lenders, it’s going to be a very different conversation. It’s not going to be so much of a hypothetical conversation. It’s going to be a real-deal conversation and you’re going to have the hard-money lenders attention that much more. So that’s the first thing.
Second thing is, you have to know the deal. I’m running out of space here. You got to know the deal and this is what I mean. You have to … you got to know three things, how much money. How much money you’re going to need and how much money is it going to return, how much money do you stand to make? How much do you need and how much do you stand to make?
Second is you got to know for how long, how long you’re going to need it. Is this a three-month project, a one-year project, a three-year project. You got to know how long. And the third one is, get to know how is it secure. You got to know what the security is. So is the security, it’s a great deal so you got a bunch of equity there? Is it a big cash-flowing type project so there’s a bunch of potential income that’s going to be coming in? Or is it after you fix it up, you’re going to increase the value in some way, you’re going to add to its value? Or house is secure, are you going to bring some collateral to the table? Because this is what any lender is really going to be looking for. They’re going to be looking for the answers to these three questions. So before you even talk to anybody about money, whether it’s hard money or anybody, you want to know this about your deal, okay, how much money do you need, how much it’s going to make, how long you’re going to need it, and how is it secure?
Third thing is to find hard money, now you can start shopping. You can start interviewing hard-money lenders, very different than asking them hard money for money. Now you’re going to offer them a deal, very different perspective. And so my two students, they’re both kind of a little bit nervous and they’re a little bit … It’s their first deal for both of them and they call up and, “Gosh, I hope this person’s going to give me money. I called four people and all their rates were really high.” And it’s all because they didn’t have the deal or the one person didn’t have the deal under contract. And they really didn’t know how much they were going to make. They had an idea. They kind of knew how to secure and then they were going around and they were asking for a loan.
So there’s a more powerful way to do that. Rather than asking for a loan, I want you to call hard-money lenders offering an opportunity. And here’s why this is why this makes sense. It might sound just like a little play on semantics to you but no, you’re typically the newer investor. And you know, shoot, seasoned investors alike are a little bit nervous and afraid. I hope they’re going to give me some money. I hope this hard-money lender is the guy that’s going to give me the money. I hope this hard-money lender … I hope she’s going to give me what I need. All right.
So that’s most investors’ mindset when they’re calling hard-money lenders. What most investors don’t realize is that hard-money lender got up this morning and they got this giant pile of cash they’re sitting on that’s making absolutely nothing, which means they’re making nothing. And they’re hoping when that phone rings the next time, they’re hoping, “Gosh, I hope I can give this person some money. I hope they got a deal that’s going to work for me.”
So understand, that’s what’s going on the other side as well. So you both bring a valuable element to the table to make this transaction work. But what I want you to understand is you with the deal knowing your numbers and positioning yourself correctly as you’re interviewing, who’s going to win this opportunity, you’re in such a stronger place than you probably think that you are. So I want you to go through with this mindset, “I got the deal, this is how much I need, this is how long I need it, and this is how you’re secure.” And then you can go because you know how much you can pay or excuse me, you know how much you’re going to make, now you know how much you’re willing to pay for the use of their money.
So I’ve got this deal. This is how much I need, this is how long I need it for, this is how you’re secure. I’m willing to pay 8%, will you take that deal? They said no, great. You call the next one, this is what I got and at 8%. Do you want this opportunity? Do you want this deal? So you’re interviewing, you’re asking. And you can go through three or four of those and they’re like, “Let me see if I can make this work.”
So if they’re going to make a good enough amount of money and that’s going to be okay for them without any real extraordinary risk, you can create relationships here. You can find a lot more flexibility here with hard-money lenders than you can institutional lender as long as you know this information and you position yourself correctly. All righty. So that’s how to find a hard-money lender, how to do it the right way and get the terms that you want. Okay, so that’s it for today. I’m Matt Therriault. I’ll see you next week on another episode of Financial Freedom Friday.