When requesting a private hard money investor to loan you money for your real estate investment there are a few things that need to be done before you pop the question. There is a reason they are called Hard Money Lenders and it is not because it is so difficult to get the loan money you need to start or fund a project. They have usually higher interest rates than a traditional bank or mortgage broker and a shorter period of time before repayment starts (usually within the first month or less than a year). They usually want collateral and not just any collateral. The collateral is something of equal value to your home financing project or them being in first lean position on your investment property.
But to get better at asking and to make it easier to get financing, these are things that should be readily available for them to review and that you should know off the top of your head.
- Know your market, know the neighborhood, know the property and all its flaws, the good qualities, and the potential.
- Know your numbers: from purchase price, rehab costs, holding costs, quiet costs, and purchasing and selling fees.
- Have a plan for your investment property and then a back up plan. What are you going to do with the property?
- Let them know what terms you are looking for to make your project work or be workable.
- Have prior projects and numbers (if you have any) of other investments you have done. Show them the proof and experience.
- Be ready to lay your personal financials and life’s history out to them. They will need to know how to reach you, your address, last year’s to 3 years worth of income statements. You cannot shy away or they will think you have something to hide.
Knowing this and having figures on paper shows that you have the knowledge, the experience, and the determination that will project through in your confidence of investing in real estate. This in turn will usually help tip the scales in your favor and a hard money lender is more likely to give you the loan. Keep your spiel short, sweet, and simple.
Last, when you “court” a private hard money lender, you must be the one to do the leg work of setting up the place to meet. Not the other way around. You are working around their schedules not your schedule. We find that hard money lenders usually will loan more often over a dinner or luncheon that you the investor pays for (remember: full stomachs win hearts). This is what we call “the wining and dining” of the hard money lender (it is also a business expense write off on your annual income taxes for your business). You still pay even if they say ‘no’ to lending money to you. It is not the end of the world. They are saying ‘no’ to the project or terms or even you (if you are considered a high financial risk). But you may never know if they may lend to you in the future on another project. It is important to remain professional and not emotional.
In a nutshell, it is “KNOW THY SELF” when it comes to requesting private funding for your business endeavors. —Crissy