With more and more investors looking at participating in the recovering housing market, new challenges have arisen in figuring out where to invest your money. For a while, the biggest challenge was finding people who wanted to take out hard money loans. Today, it's selecting the best possible borrowers from the large pool available. Setting up a system for lending can help you to streamline the process.
There are two ways to set up a system for efficient and effective hard money lending. The first is to do it yourself. The second is to leverage an existing hard money lending company with an existing system.
Systematizing your lending activities starts with creating marketing campaigns that find property investors that want to borrow your money. The best campaigns are built based on extensive experience and research to maximize their results and the returns they generate. At the same time, they are also carefully designed to comply with applicable industry, state and federal practices and regulations.
Once your process brings in hard money borrower leads, you'll need a way to qualify them and their properties. Given that borrowers looking for private mortgages frequently don't have credit scores that would qualify them, a system for doing manual analysis of the borrower and the opportunity becomes necessary. Typically, it will include criteria for such factors as:
- Determining the proper amount to require as a down payment to ensure that the borrower makes his monthly payments.
- Deciding how much to lend relative to the underlying value of the property being used as collateral.
- Inspecting the borrower's overall finances to determine whether or not he can make the loan payments even if something goes wrong with his initial strategy.
Finally, your hard money lending process will need to include a way to go from an approved loan to a closed one. This can include using your own paperwork, having a set of vendor relationships for title and closing services and finally having 3rd party vendor relationships to both get the loan money to the borrower as well as to collect monthly payments.
Given the complexity in setting up a hard money lending system, many investors now turn to specialized firms that offer their own systems. These firms handle the heavy lifting of hard money lending, allowing you to provide capital up front and collect interest and principal payments over time. You get to benefit from the system without all the work of creating one.