Epic Real Estate Investing - How to Find a Hard Money Lender | 476

Episode Date: September 21, 2018

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. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. 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, A Financial Freedom Friday. All right. So how to find a hard money lender? And I've had this question back-to-back days from brand new students, from brand new students in our REI-A's 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 had 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 was like, great. So let's go through that. But first, let's kind of go over what hard money really is. People that don't have a little bit of a misconception of what it actually is.

So there's really two types of money out there. Okay. So you've got, we'll call this, this, this is short for institutional money. Okay. 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 you've got relationship money. That's exactly kind of what it sounds like. It's friends and family. Okay, it's your Aunt Sally that's looking to help you give, 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 their 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, very much stricter guidelines, much a 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.

So that institution is going to look a lot at that. Relationship money, they're going to look a lot more in your character. It's going to be a lot more flexible. You'd probably be able to negotiate a lot more over here. The 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, okay? 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 is 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 than they're going to look at you as a person because they want to see that as long as they want to be secure more in the deal than really you because that's going to be their collateral. Okay. And then, yeah, so it'd be more for shorter term money. So maybe three months, three month projects, six month projects, maybe a year or two. So it's more of a shorter term type financing until you can arrange longer term financing to 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 would be another thing? Or maybe like a bridge loan. Like you've got to bridge the gap. You've got some of your own money. You've got some maybe some institutional money. And 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 hard money. So how do you find it? So my two students, they both had these deals, right? 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 in terms and getting good money for yourself. Okay. So the first thing is I'd ask them both. I said, do you have the deal under contract?

Okay. Get the deal under control. And neither one of them did. I said, okay, before you go through all this work and you start Googling 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 because 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 going to run 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. Okay? 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? Okay. How much do you need and how much do you stand to make? Second is you got to know for how long. How long are you going to need it? Is there a three-month project, a one-year project, a three-year project? You've got to know how long. And the third one is you have to know how is it secure.

Okay? 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, you know, how's it 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 of 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 is going to make? How long are you going to need it? And how is it's secure? Third thing is to find hard money, now you can start shopping. Okay, 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, you know, they both kind of a little bit nervous. And they're a little bit, it's their first deal for both of them. and they called up and gosh, I hope this person is going to give me some money. I called the 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 it was 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 then, 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've 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 elements to the table to make this transaction. action work, but what I want you to understand is you with the deal, knowing your numbers, and positioning yourself correctly as you are interviewing who's going to win this opportunity, you're in such a stronger place than you probably think that you are. Okay? 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? Right? They say no. Great. You call the next one. This is what I got. And I'm at 8%, do you want this opportunity? Do you want this deal? So you're interviewing and you're asking. And you can go through three, 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 lenders 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 Terry. I'll see you next week on another episode of Financial Freedom Friday. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.