BiggerPockets Real Estate Podcast - 9: Using Hard Money Lenders to Grow Your Business with Ann Bellamy

Episode Date: March 14, 2013

Hard Money Lending is a fundamental tool for many real estate investors, but is often misunderstood and difficult to find. So today on the BiggerPockets Podcast, we sit down with hard money lender Ann Bellamy to discuss how to find and successfully use hard money to build and grow your real estate investing business. This show has an immense amount of solid, actionable content that you can use immediately, so definitely take the time to listen! Before we get to the show, thank you again to everyone who has subscribed in iTunes to help make us one of the top business podcasts in all of iTunes! We’re up to 129 5-Star Reviews so far! Every subscription in iTunes and every review helps us reach more people – so thank you! In Today’s Hard Money Podcast, We Cover: What hard money is, when to use it, and when NOT to use it. Why Rehab properties in rural areas is a bad idea… Exit strategies and the new Real Estate Mini Bubble. Typical hard money rates and fees – and how you can lower them. Ann’s (and Brandon’s) first mistakes with Hard Money. The best place to find Hard Money Lenders (hint: try here) How to get your hard money loan proposals accepted every time. Which comes first: finding the hard money lender or the deal? Starting a local ethical real estate club to build your brand. How to become a Hard Money Lender. And much, much more! Links From the Hard Money Show: The Ultimate Beginner’s Guide to Real Estate Investing BiggerPockets Forum Keyword Alerts The BiggerPockets Hard Money Directory Ann’s Company Website: BuyNowHardMoney.com Ann’s Real Estate Club: Black Diamond Real Estate Investors Books Mentioned in the Show Real Estate Investments and How to Make Them my Milt Tanzer The Four Hour Workweek by Tim Ferriss Tweetable Topics: “The first and most important exit strategy is having one.” (Tweet This!) “Hard money is not a mafia guy with a baseball bat – it’s a tool for growing your business.” (Tweet This!) “If hard money makes a deal unprofitable – you shouldn’t be doing the deal.” (Tweet This!) “Don’t misrepresent yourself. It’s okay to be new at something… just say so!” (Tweet This!) “In this day and age – you need to be able to communicate electronically.” (Tweet This!) “Both persistence and the ability to adapt are required for success.” (Tweet This) About Ann Ann Bellamy is a real estate investor and Hard Money Lender in Southern New Hampshire, and has been involved in the leadership of several real estate investing groups in Massachusetts and New Hampshire. She provides short term and construction funding, or hard money loans, to real estate investors in these states and networks extensively in MA and NH with investors of all types. Ann’s BiggerPockets Profile Learn more about your ad choices. Visit megaphone.fm/adchoices

You're listening to the Bigger Pockets podcast. This is show nine. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the height, you're in the right place. Stay tuned and be sure to join the millions of others who have benefited from BiggerPockets.com. Your home for real estate investing online. Hey, everybody, this is Josh Dorkin with BiggerPockets.com here with my co-host, Brandon Turner.

What is going on, Mr. B? Hey, Josh, not too much. Things are going pretty good. Yeah, yeah. Well, I tell you what, I am definitely excited about this show. This is the hard money show, and we're going to have a conversation with a pretty cool lady today. Our guest is Ann, Ann Bellamy, and she's actually been involved in real estate. since 1996 when she bought her first duplex. I think she had mentioned it had peeling roof shingles used as siding, so that's pretty exciting. And actually, she holds multifamily and commercial

property in southern New Hampshire, and she's been involved in a few real estate investing groups in Massachusetts and New Hampshire as well. Currently, she provides short-term construction funding and hard money loans to real estate investors in these states and does extensive networking in Manhattan, Massachusetts and New Hampshire as well. She's a great lady. She's active on Bigger Pockets, and we're definitely excited to have her on the show.

But really quickly, before we get to Ann, we've got our Bigger Pockets quick tip. Quick tip. Quick tip. Here's where our jingle goes, right? tip. Yeah, we need to get a jingle. Yeah, we'll find something somewhere. But today's quick tip, on today's

quick tip, we're going to talk to you about Bigger Pockets keyword alerts. It's a feature that I know you use Brandon and I certainly do. I do. But let's talk about keyword alerts really quickly. Essentially, keyword alerts,

you want to pick keywords for things that you're interested in or want to learn more about and you'll be notified when they're mentioned anywhere on the Bigger Pockets Forum. So, for example, if you live in Denver, you might want to choose the keyword Denver, or you might want to know more about flipping houses, so you might use the keyword flip. It's also helpful if you're knowledgeable in something. You could set up a keyword alert and jump into the conversations about those topics and become the expert in a certain area on our site,

which can, of course, help you grow your business. For example, since today we're talking about hard money, hard money lender might want to include hard money as a keyword alert. And when the topics brought up, they could jump in, offer advice, and start building their credibility up for their business. So essentially, you pick a keyword that is pertinent to your business. You go in, you answer questions, and by doing so, you're actually going to get business. And the beauty of it is there's no hard sell. You don't have to pitch. Anyway, that's the keyword alerts. Hopefully you guys start using them, and we'll have a tutorial to that in our show notes at biggerpockets.com

slash show 9. We'll include the tutorial, and biggerpockets.com slash alerts is the direct link to set up your alert. Anyway, not such a quick tip for my quick tip today, but let's get moving. Managing properties can feel like a full-on circus. You're juggling vendors, tracking payments, chasing approvals across multiple properties, and maybe a few HOAs, all while trying to keep tenants happy and owners confident. One delay can throw everything off, and suddenly your day is all clean up, no progress.

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Don't let old school lending hold you back another day. That's hostfinancial.com. A lot of property managers think their job is answering tenant emails and coordinating repairs. That's not the job. The job of a property manager is protecting and growing your operating income and earning your trust while they do it. And that comes down to three numbers, occupancy, delinquency, and net promoter score. If those numbers slip, your income slum. slips and your trust slips too. And most PMs don't hold themselves to performance standards.

They focus on activity, not outcomes. Mind is different. They obsess over the metrics that actually grow your cash flow. Go to mine.co slash show me to see how mine performs and get a month of management for free. Because if you're going to hire a property manager, hire one that manages your investment like an investment. Welcome to the show, Ann. Thanks, Josh. Glad to be here. It's definitely good to have you. We're very excited. Good. Me too. Yeah, yeah. So, all right. So this show is about hard money, hard money lending.

Why don't we just start with what is a hard money lender? Well, people think that hard money has to do with, you know, being hard to get or hard arst, as they say. but it actually relates to the asset, which is a hard asset. So it's a lending decision that's based on the hard asset as opposed to your credit score or your income or something like that. Gotcha, gotcha, gotcha. Okay, so how, maybe you can explain a little bit more. It's a loan, obviously. Who uses these hard money loans? Well, it used to be that homeowners would use them when they couldn't get conventional financing. That is largely gone away. of the time now it's real estate investors, whether they're buying a single family to rehab a

distressed property and resell it or someone that is buying, say, a distressed multifamily that needs to be rehabbed and stabilized with new tenants, small commercial bridge loans, large commercial bridge loans, that sort of thing, all sorts of real estate investors. Nice, nice. Okay. Okay. And how then did you actually end up getting into this? into this business as a hard money lender? Well, I was actually a real estate investor myself, and I was on the board of the New Hampshire Real Estate Investors Association. And I found that I would be standing in front of the room every week,

and there was a room full of people that needed money. And I had an associate who had a bank account full of money and needed a place to put it. And at that time, 2.5% was low interest. So we figured out, out how to put the two together, and that's how my business started. It's always nice to have friends with money, isn't it? It is. It's kind of handy, and I thanked him for that. I hope to have that problem someday where I have all this money. I don't know what to do with it. That'll be nice.

I'll help you out if you do, Brandon. Thank you, Ann. That would be great. So I've used hard money a few times in the past. It's kind of how I started my flipping business back in the day. and I guess I still use it to a degree today. I use a little bit more private lending, which we can talk about some of the subtle differences later. But maybe we can talk a little bit first about when should you use the hard money lender actually and when shouldn't you use it? You know, you said a lot of investors use it and homeowners don't anymore.

So I guess what can you tell us about when to use and one not to use? Okay, so that's really good point. I see real estate investors using it, maybe not on their first deal because maybe they go to their aunt Edna or their buddy that is also interested in investing. I see it when people realize they can only do one deal at a time with their own money and they want to ramp up their investing. I see a lot of people use it because they only buy distressed properties and those maybe won't qualify for conventional financing.

And I see people use it, even if they do qualify for conventional financing, but they need to close in, say, 15 days or 12 days or whatever, and a conventional lender is never going to close that quickly. I do have a few fairly strong feelings about when not to use it, and one of those is as a foreclosure bailout. I strongly feel that if you are in a foreclosure situation, whether you're a homeowner or a real estate investor, that using hard money to bail you out is just going to get you in a little bit deeper. You're already buried, right? You're already buried.

You're already going down and this is just going to make it worse. So I strongly feel that you should not use hard money as a bailout. And I also feel you should not try to use it on a property you're going to live in. It's not current hard money lenders really don't want to do those kind of loans anymore. They're not legal in many areas. And you really shouldn't be trying to get that sort of loan for a primary residence. Wow. No, that's great.

A lot of good info there. So I guess then would you say that there's maybe an ideal property type for hard money loans? Or does it really just depend on the lender themselves? Well, I myself use, we do quite a bit. of rehab lending. So we will lend a portion of the purchase price and the construction funds. I do know there are some lenders that hate that sort of thing. They don't want to deal with construction. They don't want to deal with the uncertainty. They don't want to deal with opening up walls. And they don't want to go and do construction inspections. So my particular most frequent loan is a rehab loan.

but every lender's different and they have their own criteria. So what kind of properties do you stay away from, Ann? I don't do large commercial at all, and I try to stay away from rehab properties in rural areas because there are not a lot of end buyers. Or if it's a multifamily, there are fewer tenants. So the exit strategy is more difficult to implement. So even though I'm in New Hampshire and 98% of it, of New Hampshire is rural. We do have two or three tiny cities, and I stay away from the rural

areas. Got it. And then you mentioned exit strategies, and I know that was something Brandon and I had talked about wanting to pick your brain about a little bit. So what do you actually like to see the most in terms of exit strategies? Presumably, since you said your focus is rehab loans, obviously you'd like somebody who's going to do a quick fix and flip, yeah? Well, the first most important exit strategy is having one. And that sounds kind of strange, but it's amazing how many people don't think ahead to how they're going to get out of the loan or get rid of the property, especially when it's a six-month loan. If you don't have at least two exit strategies lined up, you can find yourself in trouble. So the first most important thing is planning ahead and having an exit strategy. I like to work with rehabbers that are buying low enough so that they can underpriced their property to the market. That is our best and most well-liked exit strategy because those properties sell quickly.

Most of my best borrowers are embarrassed if they hold on to the property beyond two weeks. So if they're getting multiple offers the first weekend because their property just pops and it's underpriced to the rest of the properties. That's my favorite exit strategy. And most of them have backup exit strategies, such as taking it off the market, putting new photographs up and changing the price slightly, or even in a couple of instances, I've had a couple of investors that have decided to rent their properties out long term and they get conventional financing.

When I first started out, my very first flip, and I can illustrate that point perfectly, I didn't know what I was doing that much. It was in 2007, I think, and we all know, yeah, what happened then. And so I bought this house. It was the best deal on the market. I bought it for $52,000. I put about $40 into it, and I had a lender, a hard money lender funded the entire thing. I mean, the repairs, the purchase price, everything, because I think hard money lenders

were a little bit more loose back then. And so I had roughly $90, close to $100 into it by the time I was finished. And I put it on the market at $140 to sell. and that was my only exit strategy. I mean, it never occurred to me that I might not be able to sell it. And the market started to drop and drop and drop, and we lowered our price and lowered it. And we were down to 1, I think, 110 or 115 and still wasn't selling it.

And we tried for six months. And, I mean, like, I had no idea what to do because I had no exit strategy. I thought the guy was going to have to take it back or, you know, he was threatening. I mean, it was a bad situation because I didn't have that exit strategy. but that's when I discovered creative finance. And you weren't alone in that period either. A lot of people found themselves in that. They were a little bit behind the market, so they couldn't drop the prices fast enough.

Yep, exactly. And it was a rough time to invest. I worry a little bit about that right now because prices seem to be going up very quickly. We talked to Ryan and Al, actually, both from the Sacramento area. I think that was show 7 and show 8. and their prices are just climbing like crazy there, and the inventory is dropping nationwide. And yeah, I worry about that as well.

So if I got one piece of advice for house flippers, is be careful and make sure you have that exit strategy. Yeah, and we're seeing here in Denver, we're seeing houses on market for a day. I mean, a house is listed. It's gone the next day. And at least in my area, I'm seeing flips like that. I'm seeing primary residences go in days with multiple offers.

So it's getting crazy. And we're saying the same thing in the Boston area, because even though I work in New Hampshire also, it's a suburb of Boston. And all of the REOs that are on the market have multiple offers. If you don't get your offer in, you know, within the first day or so, you don't have a chance. They're much preferring cash offers. And banks nowadays do not look at hard money the same as cash. So some of the investors that don't have big fat bank accounts are having trouble getting their offers accepted. It's kind of pretty much everywhere.

And it worries us a little bit, too. It's sort of another little mini bubble. Yeah, definitely frothy. Really quick, I know, Brandon, so we talked about those exit strategies. For those people who are listening, if you haven't checked it out, we've got the Bigger Pockets Ultimate Beginners Guide, and we've got a chapter in there on exit strategies. If you go to biggerpockets.com.com slash UBG, that'll take you to the guide.

You definitely want to check that out. Lots of good information. And since I'm plugging, by the way, this is show nine. So you can go to the show notes at biggerpockets.com slash show nine. Back to hard money, let's talk about rates and fees. And what are the typical rates and fees that are associated with hard money loans? Well, I don't think there is such a thing as typical rates and fees because it varies so much from geography to geography. California, I understand, is very competitive and they're seeing hard money rates down as low as, I guess, 9%, sometimes 8.5%, very few points.

And we have a different situation here in the Northeast. rates in the Northeast are in the 12, 13% range as a rule, occasionally 14 for some of the tougher areas and points range anywhere from 2 to 4 as a rule. It is a little bit deal dependent and deal dependent means the geography of the property and the experience level of the borrower and the amount of skin in the game. So the rates and points vary by geography and by particularly. deal. You mentioned skin in the game, and I want to get back to that in just a second. Before I do, you know, people listening to this podcast, some of them probably don't know much about hard money

or maybe never even heard the concept before. They're probably picking their jaw off the floor right now, wondering, like, how could mortgage be so expensive? I mean, 14 percent. That's ridiculous. You know, I mean, I've told people that I pay that for hard money, and they think that I'm being taken advantage of by some cruel, you know, loan shark with a baseball bat. Well, it's Anne right there. I'm watching right now swinging. Right. I have it in the corner of my office and I polish it up.

No, the image of hard money being that way persists today, but really it is just a tool. Why is it so expensive? Well, first of all, think about it. You've got a real estate investor that. is like Brandon and has no idea what he was doing on his first deal. That bill you just talked about. So Brandon, you gave me a perfect example there of why these rates and fees can be so expensive because you have a mix of a distressed property that nobody wants, an inexperienced borrower

that doesn't know what to do if things don't go exactly as planned. And third, the chances are that that borrower has no cash reserves to recover with and to bail himself out of a tight spot. So the other thing is that the other reason sometimes that people will use hard money and therefore are willing to pay more is speed to close. I have closed deals in as little as, I want to say, five days and that included a weekend. So it's very difficult to close in less than that, but speed to close is also important. So you're getting experience from the hard money lender, you're getting a high degree of risk from the lender, and you are getting service that you don't get from a conventional bank. But if you can get, sorry, if you can get the lower rates, you should definitely use them.

I always tell people, if you can get conventional financing and you have the time to do it, do it. Sorry to cut you off there. My apology. My apologies. Hey, I just got so excited. Will you vary your rates then? So you get a guy like, you know, Brandon who's, you know, fresh off the boat, who's, you know, he's got his plaid shirt on. He walks in and he's like, hey, I want to do my first flip. Cool. You know, and versus the guy that's, you know, done five loans with you and who's, who's speed, you know, who's closes. are pretty quick, are you going to offer different rates to these two guys, or are rates fairly consistent, again, dependent upon property types? Well, no, what you're talking about varying the rates according to the borrower, that's absolutely true, not only according to the geography. So here we have a case of poor Brandon that we're making an example of. Brandon, who used all of the hard money lender's money and virtually none of his own and had no idea how to get out of the deal. And by the way, Brandon, everybody starts

off that way on their first deal. And I was that way when I did my first hard money deal too. But I don't really tell anybody. So don't tell anybody. Make sure to take this part out of the broadcast. The thousands of listeners will just ignore what Angela said. We'll just ignore that part that I was in trouble on one of my first. So, but yes, so I do indulge in a little bit of relationship lending. So the borrowers that have come to me that have shown that they know what they're doing, their rates get progressively better. The more they show me, the more they are willing to put their money where their mouth is, and the more I know they will deliver and they have the cash reserves to get themselves out of a jam if it happens. So, yes, that's absolutely true. And

That speaks to the point. And you haven't asked me yet, but I want to bring this up. It relates to do hard money lenders, try to just get whatever they can get. Like if the guy doesn't know any better, will they charge them higher rates? And I can't speak to other people, although I'm sure it happens. We don't do that. And we try to be transparent and say, guy, you're brandy new and you have hardly any cash in this deal. And your rates are going to be higher.

Just letting you know that if you were borrowing in a real, shishi town versus doing a project in the worst suburb of Boston, it makes a big difference. Yeah, that makes perfect sense. And just real quick, so everyone knows the outcome of that flip I did. What I ended up doing was added a partner on to the deal. And then we refinanced it because I had no job at the time, so a bank wouldn't give me a loan. So I found a partner and I just added them on the title. It seasoned it for six months, which means you just wait, and then went to the bank and got

to refinance for the full amount. So now it's a cash flowing property at like $300 a month, which is great. But it was definitely an experience. So, um, it's a safe, Brandon. Thank you. Yeah. Well, I don't want to leave people hanging, you know, they're going to be suspenseful. And you don't want, you don't want him thinking that you were starting to get out of that deal either.

Yeah, yeah. I learned creativity very quickly. So, uh, let's go back to what, um, you mentioned way earlier, the word, uh, the phrase skin in the game. What does that mean? It means having something to lose. So whether it's cash of your own or whether it's across collateralized property, meaning let's say you have an apartment building that maybe has no mortgage or has a low mortgage. If you put that up as additional security instead of cash, you still have put your money where your mouth is, so to speak. So it means not having the lender take all the risk, but you've actually put something in the deal and your money gets lost first.

the deal goes south. Okay. Well, that protects you, obviously. It protects the lender, but it also protects the borrower to the extent that they make decisions difficult differently if they have something to lose. If someone has nothing at risk, they will make decisions much differently than if they have money to lose. Oh, yeah.

You're going to be much looser if you're playing with other people's money. That is for sure. Yep. All right. So somebody comes up to you and says, hey, yeah. I'm looking for a loan, and we'll talk about the process in a second. But how do you deal with somebody who's shocked at the high rates? I mean, is there kind of anything comparable in other industries where rates are similar?

I guess pawn shop, but I really don't want to relate hard money lenders to pawnbrokers or anything like that. Yeah, I'm thinking of those TV shows with the guy with the slicked back hair. I mean, those guys are certainly a lot scummier. I'm not saying hard moneylenders are scummy. I'm just saying those guys are way scumier. They're even scummier than scummy hard money lender. Oh, stop. I'm kind of used to it.

I actually was at trade show once, and I told somebody what I did, and he started a tirade of how I should be ashamed of myself. And I was so in shock. I had no answer for him. It didn't dawn on me until afterwards that he really had no idea that I was only doing business loans, he thought I was probably taking properties away from homeowners and stuff like that. And I think people get that impression a lot, that you're just a mean bank that's taken advantage of people and that can't get a loan. Yeah, and comparing ourselves

to the banks doesn't work so well lately because the banks are sort of not doing any better in the reputation field either. I sort of explain to them, there's not a real good explanation. I think people have to sort of come to an understanding by going through the process. They need to try to go and get different types of financing for what they're trying to do, have people explain to them that because the property has no roof and a failed septic system, that there's not a bank on the plan that's going to lend to them, and therefore that sort of property costs more to borrow money on. So I think people that are shocked at the rates sort of have to work through the process and then come to the realization that hard money is not someone trying to take their property away from them. It is simply a business tool to be used under the right circumstances when the deal can support it.

And if the hard money makes the deal unprofitable, you shouldn't be doing the deal if the deal is that thin. And we turn down a lot of deals that we think are too thin and that the borrower is not going to make money. Well, I think you said something really key there is that it has to make sense in the deal. You just factor that as part of your cost when you're doing the job. And if it's going to cost you an extra $5,000 to use a hard money lender, then you better have that $5,000 spread in the deal to make that work. And then it's okay. Exactly. Yeah, that makes sense.

Okay, so let's go. Let's talk about, I need to find a hard money lender. I found a really good deal. Where do I go? Do I look up in the phone book or what? Well, I think a lot of people go to the internet and they Google hard money and they see a quadrillion listings and they end up at one of the either national companies or the websites that have sprung up lately about.

They sound like they're hard money lenders, but they're in fact just an aggregate site or something like that. The best way to find hard money in your local area is local. locally. And so what I feel that you should use directories. Bigger Pockets is a good example where you break it down by location. And then talk to people in your local area about those hard money lenders. So go to the RIAs, ask for references of lenders that maybe other investors have used, talk to other investors, maybe think courthouse steps where a lot of guys are bidding on properties. but I think it's important to use, for the most part, lenders that are locally cited to your projects

because they're going to be an additional resource for you, number one, because they know the market a little bit. And number two, they're not having to hire appraisers from out of the area. They're not having to raise their rates to compensate for lack of market knowledge. and they can sometimes stop you from making a mistake if they know something that you don't. So asking around at Ria's is probably the first place I would start. Okay. I know also one of the way I found them in the past is by talking to real estate agents, you know, because they're working, the ones that work with investors anyway,

they tend to know some of the best hard money lenders around too because they're working with them on a day-to-day basis. So, and then... Sorry, I didn't mean to cut you off. No, go ahead. Well, the real estate agents that work with investors know a lot of those. Yes, correct. People, not so much. Also, mortgage brokers will usually find you a hard money lender.

And also, real estate attorneys know a lot of them, too. Okay. Well, since you brought it up anyway, I'm going to take a second here to plug. We just totally revamped, actually, the Bigger Pockets Hard Money Directory. Yeah, that's great, too. Yeah, awesome. Yeah, it was a lot of hard work. I know Josh and I spent a lot of time more Josh than me, but things.

is looking amazing. There's close to 200 lenders on there, I think, now. We'll surpass that here in the coming days. And, yeah, all broken down by state. So, if anybody wants to check that out, it's just at BiggerPockets.com slash hard money lenders. And, yeah,

check it out. Also, another little show plug here. There'll be a link for that in the show notes at Biggerpockets.com slash show nine. And since I'm talking, once again. I've been sitting here dwelling and thinking, I got this question. I really want to

ask you, Ann. So, you know, lots of amazing information here about hard money, hard money loans. But, you know, let's take this from the perspective of somebody who's kind of new at this and say, all right, cool, I'm going to go flip a house. I go find a great, great property that's, you know, I can get it at discount and then I can, you know, fix it up, rehab it and sell it for-profit, what do I do? What do I, you know, forget the process of the flip itself, but I want to come to you and I want to get your money, right? I want to use your money to do this. So what do you expect for me? What do I need to bring to you? Is there some kind of package that I should bring? Should I, you know, how should I organize the information that I've got? What do I

need to present. Okay, well, if you're coming to me personally, I do have an application on my website that I ask that you fill out. It's basically a spreadsheet and it aggregates all the information into one place. And that includes all of your contact information. So if you're going to someone else, I'm going to talk to everybody that isn't going to me, maybe. If you're going to somebody else, you want to provide that lender with all of your contact information, how to reach you where you live, the name of your company, your email, your cell phone, etc. If you have an attorney, you should provide that information also. That's important.

Then you want to provide all the property information. So any deed references, any tax map references, provide maybe the tax card from the website, perhaps the deed, if you get an PDF of it or something like that, that. But the most important thing is comps to support the after-repair value of your project and the rehab budget of what you're going to do to the project. It does not have to be down to the bucket of joint compound. You don't have to have it that detailed. But you should have an idea if you're going to put in a new kitchen, how much that kitchen is going to cost you. And you should be able to document

those expenses such as kitchen, roof, landscaping, a budget by line-up. And you know, a budget by line item sort of like that, and be able to put that in a coherent fashion that makes sense to a lender and a summary, what's called an executive summary in the world of commercial lending, that outlines what you're going to do to the property and how you're going to sell it. So, first of all, you're acquiring it via short sale, via REO, via probate sale, whatever way you're acquiring the property, what you're going to do to it. it and how you plan to either sell the property or refinance out of the hard money. And you should summarize your not only what you're going to do to the property as far as

changed, just like adding a master bedroom or something like that, but you should also talk about your marketing for how you're going to sell it and the process, if you're going to refinance, say you've already gotten a pre-approval for a finance. So basically, the rehab budget, the property information, the executive summary, the purchase agreement and whatever format it takes in your particular state and frequently photographs of the property inside and out so the lender can get an idea of what sort of condition it's in before he or she goes out to the property. That's it, huh? Do I talk too long? No, no. It's all important stuff, really. Absolutely. I had a lender one time, a hard money lender

once because when I when I applied for a hard money loan I do pretty much what you just said and I try to make it really professional I make it look good I give them the spreadsheet the picture is everything and I put it in this nice little packet I even picked up a you know a little plastic cover from Staples and I mean I meant to look real good and and the guy told me he said you know Brandon if if more people gave me you know presentations like this people get a whole lot more loans funded he said the majority people just call them up and say hey I need money And that's it. That's right.

That's exactly right. So if you want to be taken professionally as if you know what you're doing, then present yourself as if you know what you're doing, even if you don't. Now, I don't mean lie. I don't mean say, oh, I work with a network of investors. The best lie in the game, right? And many times, actually, and I start laughing when people call me that way. And I say, dude, you're brand new.

It's okay. Just say so. And usually they're like a little embarrassed and then they laugh and then we just have a real conversation. So, but the more information, the more well thought through you can show that the project is and that you've put a lot of time and energy into thinking this through and making sure that you have multiple strategies and that you know what your plan is, the more you're going to impress someone. I've done projects with people that haven't done any projects before. just because they knew how to analyze the deal and show me what their thought process was. So it's important.

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It can take less if need be, and it can take longer if various factors come into place, such is the borrower not being timely with getting me what I asked for, or there being title issues that hold up the closing, or the closing attorney in Massachusetts, we have to use attorneys, the closing date is December 31st and 463 other people want to close on the same day, and somehow the attorney can't quite schedule it that day. So those sort of things can hold it up. But in general, we're out there pretty quickly. And as a rule, by the time we go to the property, we're 95% likely to do the deal. We don't usually drive to the property unless we have a pretty good idea that we're going to do the deal. Oh, that's great. That's great. Now, is there anything other than, I guess, just really being organized, anything in the hands of the borrower that they can do to speed the process up, or is it just kind of have your T's slashed and your eyes dotted?

Well, one thing that amazes me, and everybody isn't as technical as everybody else, I mean, everybody has their own things that they do, and some people are more technical and others. But in this day and age, you need to be able to communicate electronically. So when someone says to me, let me mail you this package, I'm like, what's that? You mean like snail mail? On a donkey? What? Yeah. Yeah, I had somebody call me the other day and say, I'd like to send you a brochure about. who we are because we're just getting ready to start doing deals. And I'm like, you want to send me a piece of paper to tell me that you haven't done any deals yet? And I didn't really say it like that, but that's what I was thinking. And I said, listen, if you really want to send me information that's

going to have me keep you in my database and remember who you are, why don't you fill out the, this is who I am part of my application. And I'll save that in my database. And then when you're ready to go on your first deal, then I have all of that. Oh, okay. So unfortunately, in this day and age, you sort of need to have some ability or have someone do it for you of using Word and Excel and PDFs and send photographs electronically, that sort of stuff. I think it's kind of important. So if it's not something you do yourself, have someone that can do it for you. Okay. Yeah, that's great. So let me go back a little bit. Actually, there's a bigger pockets friend of mine, a local guy who I met on Bigger Pockets who called me the other day and asked me this question. And I honestly didn't know

the best answer for him, but you're the perfect person to ask. So he asked me, should I find the hard money lender first or should I find the deal first and then present it to a hard money lender? Yes. You should be scouting around for hard money lenders. You should be talking to people. You should be getting references. You should be having conversations if the lender's will talk to you. A lot of lenders won't talk to people that don't have a deal. I spend a lot of time at local networking meetings talking to people that don't have deals and making myself accessible so that they can have time to talk to me when, you know, even when they don't have deals. At the same time, a hard money lender is not going to commit to something that doesn't

exist yet because it's deal based. It's not person based. So you need to have your property lined up and at least getting ready to come to an agreement as to terms, at the same time that you're deciding who you're going to submit an application to in the, in terms of who your hard money lender is going to be. And that doesn't have to only be one person because you may not be sure that your lender of choice is going to do the deal you want. So it's not uncommon to be shopping around. That was actually my hard money lender calling me. So when you do approach a hard money lender, I guess other than the package, what other tips would you have to ensure that the deal gets funded? Well, one thing that I would like to point out, people try to hide material information because they think the lender is going to look at it and say, oh, I'm not going to do this deal.

Most of the time, the lender is going to find out that information. So it looks even worse if you've sort of not revealed something that was pertinent to the deal. For example, the fact that it's a short sale. When you get to go to close, your closing attorney or title company can't help but know that this was a short sale. And if you're trying to violate the terms of the shorting lender's approval, that's going to be obvious. So don't do that sort of thing. Reveal everything up front so that everybody's on the same page. everybody knows what direction you're going in and the hard money lender can say,

yes, I'm willing to do that or no, I'm willing, I'm not willing to do it. And the other thing is make sure that you ask a lot of questions of the lender so that you know what's going to happen through the process. Ask about upfront fees, ask about back-end fees, ask about attorney costs, ask about timeframes, ask about what you can expect and what's expected of the borrower of both at the same time. So that will help everything go more smoothly because unmet expectations are one of the most difficult things that we all run across in the course of business. Cool, cool.

Well, so, you know, you got me thinking about something. You just mentioned now and you actually mentioned earlier, people kind of fuzzing the truth a little bit. Hey, you know, I've got a conglomerate of associates and, you know, I work with all these people, you know, the bullse meter quickly ringed. when you hear that stuff. And the same thing happens when we hear it on bigger pockets. And so, you know, it just kind of reminds me to share one bit of really important advice, which is do not lie. Your reputation is everything.

If you start your reputation off with a lie, it's going to continue going that way. So, you know, I always tell folks, you know, just be truthful, be honest about where you are in the process. people will be helpful and, you know, just don't fuzz the truth. I mean, it's so important that you not do that. Well, and it'll usually come around to bite you anyway because the real estate investor world, especially within your geography, is very small. And invariably, someone else will be talking about you and tell the real truth. And they say, oh, really?

And there you go. So your lies, it's going to come out eventually. Absolutely. Take the high road. Yeah, yeah, for sure. Hey, what about upfront fees? You had mentioned that. I know we tend to hear people say, you know, if a lender is charging you some kind of upfront fees, stay away. Is that true? Is there any case in which upfront fees are okay or no? Well, I can't say arbitrarily that upfront fees are always bad because there are times when the lender is doing significant due diligence or perhaps putting up all the money and the borrower is putting up none when an upfront fee might be appropriate. I myself, we have two basic fees. one is if we had to get an appraisal, which we almost never do.

We almost always do our own opinion of value. And the second is that in order to start the process of pulling title and proceeding to close, the closing attorney needs a deposit because there were many, many times that the deal doesn't happen for one reason or another, bad title, whatever. And the attorney is then out the money. I say attorney, but in most places it's title company. but it comes to the same thing. So the title company or the attorney is then out the money that they spent to start on the title search and getting ready to close.

So we do require a deposit with the closing attorney so that they know that you're serious. Okay. Well, and I think those are all kosher fees. I think those are all legitimate. I think we're talking about fees that are just kind of bonus, kind of add-on fees where you'll see, you know, a lender say, well, in order for us to fund a loan for you, you know, you're going to need to put, you know, a couple thousand bucks down just to start working with us. And, you know, it's not. The application fee or the, I'm charging you this because I can fee.

Yeah. Or the, we always require this due diligence fee or whatever. Those are junk fees, right? I mean, they're junk fees. I suppose there are times when they might be warranted. Certainly in larger commercial deals, that's a possible. But I would in general stay away from a company that's going to charge you upfront fees unless you have friends and business associates that have successfully used that company at the same fee and successfully closed a deal. So it's a one-on-one personal reference. That would maybe be an exception.

But I don't charge them. We don't do big commercial deals. Okay. That's awesome. There you go. Before we go on, I do want to shift gears a little bit. But one quick thing is earlier you said about lying. You don't want to say something that's not true. I just want to bring up the fact that your hard money lender knows more than you do probably if you're a new investor. So, I mean, I think it's important to trust the hard money lender who you guys have done hundreds of deals.

You know that this is not a good deal. So if you're trying to hide something from the lender because they won't fund the deal, then you should probably not do the deal because it's not worth funding. But let's go on real quick to, before we wrap up, people who want to become lenders, people who have a little bit extra money. How do you get into that? How do you start lending? Is there laws you have to abide by it? And how does that work?

Okay. The laws are an important part of it. And I do want to say that I made a lot of mistakes when I first did my first few deals. And sometimes I just got lucky, as many real estate investors do. they jump in, they do a deal, they make some money, they get lucky, and find out afterwards all the things that could have bit them right in the butt and they didn't even realize it. So the first thing is if you're going to do some private lending, and I'm calling it private lending as opposed to institutional, whether it's low rates because it's to your cousin and your nephew or whether you decide that you want to lend with a hard money company, you need to talk to a good real estate attorney who is knowledgeable in the private lending space. And I don't mean just a real estate attorney that does closings. I mean someone that specifically does private lending closings and works with a lot of private

lenders because the laws relating to private lending have changed significantly in the last few years. There are mind fields out there and you need to know what to do and what not to do and stay away so that you don't end up on the front page of your local newspaper as the Attorney General's proof that they're doing their job. So you want to stay away. And I'm not saying, talk to your attorney so that you can sidestep those issues and find a way to do them legally. I'm saying stay away from those issues. Sometimes you just don't even know what those issues are when you first start out private lending. The second thing is that you need to, I recommend that someone's going

to start as a rule. The first loans that they should do should probably be to someone that they know, whether it's a real estate investor that they know in their network or maybe a family member or that sort of thing. But if you're part of a real estate network and you know other real estate investors and you want to lend, it should be somebody that you maybe think is already successful and you know that they've successfully completed a deal. So at least if you know the person and the deal goes south, you've got some common ground there to work it out and make sure that it comes together for both of you and that you don't both get hurt. Lending to people that you have no background on, no knowledge of, I'm all about relationship lending. I lend to people all the time that we don't

know, but we form a large network and get to know people and check people out through that network. So I think that's the safest way to start. It doesn't mean that you don't progress to doing loans with people that you don't know, but certainly to start with, it's a good place to start and work with someone, either a broker or a hard money company that can bring you deals that is not, they're going to work in your behalf and not present the deal as a typical mortgage broker might. Well, excuse me for saying this, but in the olden days, a mortgage broker would present a deal in the best possible light to make the borrower look as clean as possible even if he knew they

weren't. And that's not who you want to work with. That's great. That's great. Well, really, really quickly, personally, I always try and keep family and business apart. I think, you know, I think it works in some cases, in other cases, it can be very scary and dangerous. So I'd just tell anybody listening to know what you're getting into when you start doing business with family. You need to be very, very careful about that. And you're absolutely right, Josh, on that. But it doesn't necessarily have to be family. It can just be someone you know through your real estate network. Absolutely. Absolutely. All right. So we are running out of time. So one really quick thing,

I know one of the ways that you've used to find potential borrowers is a group that you created. and maybe we can talk really briefly about this group. I know you and I had some conversations about real estate clubs, and we had talked, and we're kind of on the level with, you know, there are a fair amount of real estate clubs out there that serve little purpose to investors other than to, you know, be a platform by which they can be sold something. And I know you wanted to go out and create some kind of group, not just for your own personal use,

but because you felt that there was a need to have a really good, valuable club in your area, a group in your area. Can you tell us in 30 seconds or less? No, not really. You can give us, you know, really quickly, though, tell us about this group, how it got started. What do you do that's different?

And what value do you get in addition to, obviously, the regular networking from this group? Okay. Well, what I did was I partnered up with a couple, three actually rehabbers in my area that are very experienced, very knowledgeable and had a high level of integrity. And we formed this group and it is based largely on the bigger pockets model actually because we do not allow advertising. We do not have selling speakers. We don't have membership fees. We are talking about sponsorships but we don't have them yet. And basically

we are a free networking group simply for the purpose of having us all do more deals. Now, one of the things that I found when I was involved with some other local real estate investor groups, whether it was a nonprofit or another one that I founded, is the person standing in front of the room, that is the leader of the group, becomes the go-to person for many different types of deals, and that can be very profitable. So I liked that. So that's part of why we founded this group is for us to do more deals. But we found that dealing from a mentality of abundance instead of trying to keep everything to ourselves just exponentially increases the network.

And we've had huge response and huge attendance to this perspective. And everybody in our area is very excited about the black diamonds. Nice. What's the name of the group again? It's Black Diamond Real Estate Investors. We have a monthly meeting in Waltham, Massachusetts, and we are just launching next week our second location in Worcester, Massachusetts. Nice, nice, nice. That's cool. All right, we've got to ram through this really, really quickly because we are pretty much out of time here. So, Ann, what is your favorite real estate book?

That one is not on hard money lending. It is on multi-families, because that's for cash flow. and it is called Real Estate Investments and How to Make Them by Milt Tanzer, T-A-N-Z-E-R. I love that book. Excellent. I have not heard of that. I've read it three times. It's awesome. Yeah, I've never heard of it either.

That's great. What about business book? What's your favorite business book? That would be the four-hour work week. Yeah. That's the guy's name, Tim Ferriss. Oh, yeah. Not another one.

Yeah, well, I was enthralled. I don't do everything he tells me. As a matter of fact, I probably only do 10%. of what he tells me, but it was still, it was great read. It is a great read. How about hobbies, Anne? I know you're the, you're the funny lady on the site. You always crack me up, so do you do stand up on the side? What do you do for fun? I don't. I don't. I use humor to sort of break through the hard money ice, I think.

And when I'm standing in front of a group, it sort of makes me, laughing at myself makes me feel that other people aren't going to do it. So that's why I use humor. But as far as my hobbies, I'm big into dog rescue and I am into gardening and skiing. So those are my off-duty. They would call that ice skating back east. Well, yeah, that's kind of what we do here. We do it vertically. Yeah, exactly.

Well, the final question, Ann, I want to ask is I'm going to tweak it a little bit. I ask everyone this. But so in real estate investing, there's a lot of people who come and go and a lot of people who find success. So I'm wondering, from a lender's perspective, the borrowers that you've seen, what are the ones that sets them apart as being successful? What makes the borrowers actually make good money on their flips or their investments? And what sets the ones that you see just come and go quickly? So what do you see that sets them apart? Persistence.

And the ability to learn and taking it. information and adapt. So that sounds kind of contradictory, persistence, and adapting, but you have to keep trying and keep trying and keep trying. I'm not even particularly good at keeping trying. I'm one of those people that, you know, after two or three touches, I have a tendency to give up until I remember somebody saying, you know, no, until you've touched somebody seven times, you're not going to get a response. So, yeah, persistence, keep trying and keep trying different ways. If you can't do it one way, try it another. That's great. That's great. Really quickly, what is the name of your company? And where do you lend?

My company is Buy Now. My website is Buy Now Hard Money, and we lend in Southern New Hampshire and Massachusetts from Worcester East. And that's it. We have a small geography. We're very local. And we'll link to that in the show notes. And you can also find it on the Bigger Pockets Hard Money Lenders Directory. otherwise you are certainly on bigger pockets so we'll point folks to your profile there. Are you on Twitter, Gplus, Facebook? Do you connect with people over there or no? I am. I'm on all three and I'm not very good at any of them. Actually, bigger pockets is the one I do the most because it's the most fun. And you give amazing Ann is on the forums helping people every day with their questions about hard money stuff. So if you ever have questions and you post it on the site, the odds are that she's going to help you out.

Especially if you put the keyword in Massachusetts, even if it's not about Massachusetts, I'll be there. Nice, nice, nice. All right, Anne, well, listen, it's been an absolute pleasure having you seriously fantastic information. Thank you so much for being on the show. It's been a blast, guys. Thanks for having me. Yeah, thanks, Ann. All right, everybody. That was our show with Hard Money Lender and Bellamy.

I know I definitely enjoyed the show. Tons of great actionable content. I'm sure you guys also got a lot of great info from it. Before we go, I just want to remind you guys that you could read the show notes, which include links to a lot of the cool stuff that we talked about today at biggerpockets.com slash show nine. I also want to say thank you to everybody who's left us a review in iTunes. You guys, we're at 129 five-star reviews. If you haven't yet left us a review, we really, really would appreciate you.

it. It only takes about 10 seconds, but it really helps us out, get more visibility for the show, get more listeners. So if you get that far, actually, if you could also hit the subscribe button, it lets the iTunes store know that you really like the show. And we, of course, would appreciate if you would do that. That's it for today. Come connect with us over on biggerpockets.com and set up your free account and start learning and growing, doing deals, you name it. Check us out on Facebook at Facebook.com slash bigger pockets. And until next time, everybody, this is Josh Dorkin, signing off. You're listening to Bigger Pockets Radio.

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These are going to the outtakes. Stop laughing. Thank you all for listening to the Bigger Pockets Real Estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform. Our new episodes come out Monday, Wednesday, and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian. K, copywriting is by Calico content, and editing is by Exodus Media. If you'd like to learn more

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