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Considering Becoming A Hard Money Lender?

Feb 29, 2008
If you're considering becoming a Hard Money Lender, you would be well served to become a Real Estate Investor beforehand. This article dovetails off of my last one, "When It Comes to Hard Money Lending, Stay Local," which relates the wisdom of concentrating your Hard Money Lending business in your local market because of the depth of market knowledge you can attain, and the degree of control you can assert over your deals. At the same time, if you're considering getting into the Hard Money Lending business and you've never invested in real estate, your learning curve will be far steeper than that of someone who's already had previous investing experience. In the Hard Money Lending game, the steeper the learning curve, the more expensive it can turn out to be.

When I say become a Real Estate Investor beforehand, I'm not saying that you should buy and sell a dozen properties before becoming a lender. Two or three will suffice. What you're shooting for is to build a support team for later on when you progress into your lending business. You'll need a trustworthy contractor from whom you can learn the costs of various renovations, who will also provide you with renovation quotes on properties when necessary to confirm the repair estimates provided by potential borrowers. You'll need an abstract company to perform deed searches, underwrite title insurance and conduct smooth, problem free closings. You'll need an appraiser to ascertain the values of properties before you loan money on them. You'll need a mortgage broker to aid you in determining the risks of extending loans to potential borrowers. You'll need a good real estate attorney in the event that you have to foreclose on a property. And lastly, you'll need a RealtorŪ in the event that you have to liquidate a property which you've taken in foreclosure.

What better way to make these contacts than in the course of buying, renovating and selling a couple of investment properties? Using this approach will insure that when you start making loans, your support team will cater to you based upon the weight of your past business. You'll also be free to learn the ins and outs of Real Estate Investing without the added complications of dealing with a borrower in default. When the time comes for you to start making loans, you'll be able to judge properties and neighborhoods with an educated eye. You'll have a well of knowledge from which to draw when potential borrowers present you with estimates of property values and repair costs. Your experiences in selling properties will help you determine whether or not your borrowers' estimates of marketing times are accurate. All of this invaluable knowledge can only be obtained through experience.

Book reading and other forms of research will not prepare you for the rigors of Hard Money Lending one tenth as well as actually investing in real estate. An added bonus is that you should make money while you're learning. As the old saying goes, "There is no substitute for experience." In the arena of Hard Money Lending, experience equates to reward - inexperience equates to risk.

Which side of the scales would you rather be on?
About the Author
Frank Lawson is the Editor of The Profit Blog, the Online Education Resource for Real Estate Investors and Hard Money Lenders. With 10 plus years of experience in Real Estate Investing and Hard Money Lending, Frank has an expert perspective on today's volatile real estate market.
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