Hard Money: Choosing the Right Lender
Some qualities to look for when searching for financing partners.
It’s no mystery, private lenders are unique. Unlike traditional lenders, private lenders are non-institutional companies (or individual) that loans money typically for the purpose of funding a real estate deals. To ensure your transaction moves quickly and efficiently, it’s important to know exactly what qualities to look for and who will fit your particular needs.
Flexibility and speed above all else
As we’ve outlined before, speed is probably the largest advantage of private lending. Funding can be obtained tremendously quickly and the qualification process is much less toilsome and intricate. In fact, in most situations, these deals can be completed and funded within a week—compare that to the 45-60 days it takes, on average, to secure a bank or credit union loan and it’s no contest if timeline is concern (which it nearly always is). What’s more, the application process usually takes 1-2 days, and sometimes can be completed the very same day. A quick close with a private lender can entice sellers and set your offer apart from other buyers with slower, more conventional funding.
When shopping around, talk to private lenders about their turnaround times and track record with funding deals quickly. As most hard money deals are time sensitive—your lender should be attentive and quick to respond. Nothing feels worse when your financial person isn’t available when urgent questions or issues arise.
Finding the perfect size
When searching for the perfect lender for your deal it’s important to consider the size of the firm. Too small and the firm may lack the manpower to adequately complete your deal. Too big, and you might get lost in the shuffle. To determine if the size works for your deal, inquire about workflows—will the same person take my deal from beginning to close? Will I receive advice from one person and then be handed to another individual down the road? It’s also helpful to ask how the firm has scaled for deals in the past and what challenges they’ve encountered along the way. Just as the firm could be too big to focus on your specific needs, you also need to make sure your lender has enough personnel to meet the demands of your project.
Local market knowledge
Your lender should be well-versed in not only hard money lending best-practices, but also highly educated in your local market. Lenders who are new to an area or unfamiliar with the economic intricacies of local neighborhoods and business districts are an incredible potential risk to your entire deal. There are many factors that affect the value and future appeal of a commercial property and much of the information isn’t readily available. For example, say you’re researching rent prices and comparing two properties. Finding a residential property comparison (or even several) in a similar neighborhood is a piece of cake. The same can’t be said for commercial real estate and it can be difficult to stack properties against each other. Make sure any potential lenders you’re considering specializes in commercial real estate, rather than just one of many capabilities.