You are a real estate investor unafraid to work with new lenders on every deal. Yet you have also come to understand the value of establishing long-term relationships with one or two lenders – particularly hard money lenders. So you have decided to move in that direction. How should you proceed? What should you look for?
Actium Partners is an established hard money lender based in Salt Lake City, Utah. They have an outstanding reputation in the industry. It is not surprising that they recommend looking for a lender that is both well-known and highly respected. Reputation goes a long way in the hard money business.
In addition to a solid reputation, Actium recommends looking for the following four things:
1. A Similar Focus
It is easier for lenders and borrowers to build long-term relationships if their individual businesses have a similar focus. For example, Actium Partners does not do fix and flip loans, so it would be useless for a house flipper to approach them. They need to find a hard money lender willing to fund their investments.
Above and beyond that, it would be ideal to find a hard money lender who specializes in fix and flip. If house flipping is the primary focus, a lender is likely to be more attuned to the investor’s needs. Working with a lender who merely dabbles in fix and flip may create unnecessary disruptions.
2. Reasonably Fast Turnaround
Hard money works so well in the real estate game because lenders can usually get things done in a matter of days. However, fast turnaround is not guaranteed. There are some hard money lenders who just don’t work as quickly as others. Real estate investors should be wary of that.
Real estate acquisitions tend to be time sensitive. Investors turn to hard money because they cannot wait months for banks to approve and fund loans. Likewise, they might not be able to wait on hard money lenders who take two or three weeks. They need the ability to fund acquisitions within days.
3. Loan Flexibility
The typical hard money loan offers terms ranging from 3 to 12 months. Having said that, there are some projects that require terms of two or three years. This suggests that real estate investors are best served by lenders who have the flexibility to offer different term lengths.
Flexibility on collateral is also an immense help. Why? Because there are times when an investor does not want to put up the property being acquired as collateral. They would rather use another asset.
4. Affordable Rates and Fees
It is difficult to talk about establishing long-term relationships with lenders and not discuss affordability. Hard money lenders are no different from banks in that they make money by charging interest and a variety of fees. And like banks, hard money lenders also compete. It is in the investor’s best interests to consider how affordable a hard money lender is.
A lender who meets the other three requirements but is unaffordable in terms of interest rates and fees is not going to be much help. You cannot invest if you can’t afford the cost of borrowing. On the other hand, the cheapest lenders may not meet the other requirements. So it’s a balancing act.
Finding hard money lenders with which you can build long-term relationships can make a significant difference in real estate investments. Hard money lenders truly appreciate repeat customers. Likewise, investors value the opportunity to do business with lenders who treat them well. It is a give-and-take from which both parties stand to benefit a great deal.