While bank lending can still be challenging to source, hard money loans are relatively easy to find. The challenge comes in finding a good hard money lender that will offer you fast execution, competitive rates and ongoing service. Those three qualities separate the market's best alternative financing sources from others.
Once you know where to look, hard money lenders are all over the market. A simple Internet search can turn up more lenders that you'd ever be able to do business with. Talking with a real estate agent or with a mortgage broker that is experienced in the investment real estate market can help you to narrow down the list. Attorneys, 1031 exchange qualified intermediaries and other people that are active in the market can also make recommendations.
When you find a prospect to provide you with hard money loans, here are a few things that you can look for:
- State licensure. Whether or not a lender technically needs to hold state or national licensure, knowing that he went through this extra step is a sign that he's serious about the business.
- Flexible lending terms. The benefit of taking out hard money loans is that you can tailor the transaction to your needs, and the right lender will be able to work with you. This doesn't mean that the lender will offer rates that are comparable to what you'd get at a bank, if you could find a bank to lend to you. What it means is that you'll get competitive rates and underwriting that make it possible for you to do profitable leveraged deals.
- Fast turnaround times. Private lenders should be able to prequalify you to offer you a proof of funds letter and should be able to close a loan in no more than three weeks. This is fast enough to let you compete with all-cash buyers but also leaves enough time for you to know that your lender is doing appropriate due diligence.
- Membership in appropriate industry associations. A lender that is a member of the American Association of Private Lenders, for instance, has invested in his business and, even more importantly, has signed on to the Code of Ethics that protects you as the borrower.
- Industry experience. Hard money loans from lenders that know investment real estate frequently come with help from experienced partners. They can also be easier to close, since your lender understands your needs.