How to Get a Hard Money Loan & When Can These Loans Go Wrong

Hard money lending can be a great way to accomplish some projects, but what makes a good hard money lender? How can these loans go wrong? Brenda will enlighten us in this matter. You can read this entire interview here: https://bit.ly/3wk3otO What do you look for in a borrower when lending them money? It's mostly the business plan, because we're hard money lenders. So it's mostly about the asset itself, how do you plan to either add value and sell, or add value and refi, what your plan is. We have two products, one is the bridge product where it's a shorter term loan. And then there's a long term rental product. We look for different things, for the shorter term ones, we just want to make sure that you have an exit strategy. And if it's a flip, we want to know what the as is value is, because that's what we're basing our loan on. And then we can add a construction loan on top. So what is your scope of work, who you're working with, do you need to get permits, how long does it take to get permits, whether you've had experience with this type of project, because it's important for us that you succeed, and then also the after repair value. So if you're selling it, we'd like to see that borrowers have an idea of what properties are going for, and that the same sort of condition or square footage you have is similar as possible to the the subject property for comps. And experience matters a lot. When can these types of loans go wrong? We've seen delays a lot of the times, especially if you're in the Bay Area. San Francisco can take a long time to get permits. We've seen borrowers that thought it would take under 12 months for sure. And then they had to extend the loan. They didn't know the permits were going to take so long. Project delays. And then, this happens not as frequently because we do that after repair value, but sometimes if people are overly optimistic about after repair value, and they don't sell it at that price, then they might lose money on their investment, because they were expecting a return, but they don't get it because they couldn't sell it at that price, or it takes too long to sell. Mostly it's either the As Is value comes back low which we, as a lender, we say it's always, you know, 80% or X percent of the purchase price or that percentage of the As Is value. Sometimes the property value comes back low, and then the investor at that point will need to decide, even if the appraisal comes back low, Do I still want to move forward on it? And sometimes they don't, and they find another property. I think that's good to catch ahead of time, whether they find issues with the properties before the loan closes, and we're doing our due diligence as well. We've caught some things that unfortunately, the deals didn't go through. They also didn't have to go through with the project, which they might have lost money on as well. How about new investors that have never done anything like that? How could they go about getting this kind of loan? We can still work with them, we love working with them, as long as they have a business plan, they're putting their own money into the downpayment, skin in the game, and the property values are there, we can lend to them. Typically, we do vet new investors a little bit more, because especially if we haven't worked with them, because we want to make sure that it's their first project and that we want them to be successful. We do a borrower interview, if they're getting a rehab loan, or a renovation loan, and we even look at their scope of work to see if it's reasonable. --- Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support