The Job of a Hard Money Lender includes the following;
Marketing to find customers that need money
Typically you will look at 25 or more deals before you will find a transaction that is worth funding. In the new world of the internet most marketing is done online in a very extensive manner.
Answering Questions from Customers
Most customers have lots of questions before they have even found a property they need a loan on. Most Hard Money Lenders spend more time on the phone with real estate investors that don’t have properties under contract than ones that do have a property under contract.
Property Evaluation
Each property needs to be evaluated. Since Hard Money Lenders, lend on the value of the property primarily, the value of the property is important. Not only is the quality of the evaluation important but also the speed that the evaluation is done is extremely important. We believe that more than one evaluation should be done by two separate evaluators to determine the value of the property. It is also important to realize that in a real estate market that is trending down “Active Homes” are more important than “Sold Homes”. Sold homes will be too high of a value and Actives will show a lower price. However in an upward moving market the opposite is true. Not only does the evaluation need to be done but selecting the correct evaluator and training them is of upmost importance.
Background Check
Ordering and evaluating a background check on the borrower. This will tell you about the integrity of the borrower and if they have had any run-ins with the law.
Underwriting each file
These include good and bad transactions. You have to make sure that the deal being brought to you meets the criteria that you are looking for. Once the evaluation comes back each file needs to be looked over then a determination is made to whether the deal is good or bad.
Title Company
A Preliminary Title report or a title commitment needs to be ordered on each property. This title commitment needs to be evaluated to insure that first position can be offered on the property. Also to insure that the lender will get first position title insurance.
Funding Commitment Letter
With the increased amount of fraud it is critically important that due diligence is given to the place that a Hard Money Lender is wiring funds. A due diligence is necessary to make sure the title company that is receiving the funds is a real title company and not a shell to just get the wire and close down.
Hazard Insurance
Most properties that Hard Money Lenders lend on are homes that are vacant. Most insurance companies don’t insure vacant homes. Many insurance agents and even borrowers are not aware of this. Due to this a “Vacant Dwelling” policy has to be issued. Hard Money Lenders have to work with the Borrower as well as the Insurance company to get a “Vacant Dwelling Policy”. This will insure that if something happens on the property that the lender will be covered.
Evaluate Areas
Knowing what areas to lend in is of upmost important. Being in the market you can hear what problems other lenders are having. Also it is important to stay up to date on changes in foreclosure laws. Some states have a 12 month right of redemption. That means that 12 months after the foreclosure the borrower has the right to come back and buy their home from you as the lender.
Closing Docs
Getting loan docs prepared by attorneys, keeping them up to date, as well as getting the docs completed when it comes time to close.
Servicing the Loan
This includes keeping in touch with the borrower, the progress of the loan and collecting payments and extensions as needed.
Accounting
This includes calculating the amount due, the interest calculations, payments that have been made, late fees, default fees and so forth.
Collections
Work with borrowers that are behind on payment to get payments current as well us update the files.
Payoffs
Preparing payoffs when the loan is ready to payoff.
Foreclosing
Hard Money lenders have to work with attorneys on the foreclosure process. Knowing the foreclosure laws is important to a Hard Money lender so the lender can know the risk associated with the loans. In addition, being a large enough Hard Money lender that you can get discounts on foreclosure will have a major saving for Hard Money Lenders when it comes to attorney fees. Most large hard money lenders will spend less than $1,000 in attorney fees for a foreclosure.
Project Manager
When a property is taken back most of the properties are in need of rehab. Most Hard Money lenders want to make as much money as possible so they then project manage a remodel of the property. The reason for doing this is so that the property can be sold to a homeowner rather than to another investor.
Selling the Property
When the property gets complete with the remodel it then needs to be marketed and sold. Hard Money Lenders are involved in the process of selecting agents and negotiating on terms as well as following up with the agent.
The most difficult part of this process is finding good loans to do. That is the most time consuming: Marketing to people that need a loan, answering questions, evaluating deals that will not work and working to find the transaction that are working and funding.
Cost to Hard Money Lenders include the following;
* Marketing Expense on finding borrowers
* Evaluations on properties that don’t fund ( 1 in 20 transactions typically fund)
* Evaluations on properties that do fund
* Background checks on properties that don’t fund
* Background checks on properties that do fund
* Credit checks on properties that don’t fund
* Credit checks on properties that do fund
* Processor checks on properties that don’t fund
* Processor checks on properties that do fund
* Pay Attorneys to Create and Maintain Closing Documents
* Pay for Documents to be created on each closing
* Accounting program to keep track of payments, interest rate, late fees
We look at Hard Money Lenders in two categories.
Active Hard Money Lenders
Passive Hard Money Lenders
Active Hard Money Lenders
Active Hard Money Lenders want to be in control of the entire process above from the beginning to the end. Active Hard Money Lenders are looking for a “Job” - something to do rather than an investment.
Passive Hard Money Lenders
Passive Hard Money Lenders are not looking for a Job. They are looking for a good return. They realize there could be a greater return if they did all the work of an Active Hard Money Investor. However they would rather just review the details provided by strategic partners rather than taking on the full work as outlined above. Passive Hard Money Lender get all the above work done above and only look at deals that are ready to fund. DoHardMoney.com provides services to Passive Hard Money Lenders.
