Developing a strong relationship with hard money lenders is easy to do when you put yourself in their shoes. They're usually private individuals or small businesses that are backed by private capital.
Many are interested in real estate and in investing in real estate, but would rather provide debt capital than the mixture of money and sweat equity that you put in. Your lender's taking a big risk by making a loan that a bank wouldn't, and he only wants one thing in return — his money back, with interest. Along the way, here is how to solidify that relationship:
Six Ways Investors Develop Relationships with Hard Money Lenders
- Give hard money lenders good opportunities. They're investors, so they look at your deals the same way that you do. If you have a deal where you can make money, it's a good one for them, as well.
- Provide complete information packages. Your lender needs to evaluate the deal, and if you don't give him what he needs, he can't give you a decision.
- Share the risk. Real estate investing isn't like buying a personal residence with 3 percent down and letting the bank take all of the risk. Hard money lenders want to be your partner in transactions, but they usually don't want to put in all of the money, take all of the risk, and not be able to participate in the upside.
- Make your payments. When you borrow money from hard money lenders, there's an investor just like you on the other side of the transaction. Missing loan payments has a direct cost for that investor and establishes you as a bad risk.
- Leverage your lender's experience. Some hard money lenders like to be involved in deals on which they lend. In many cases, your lender will be an experienced real estate investor that can be a resource for you. It's in his interest to help you out, since the more success you enjoy, the more likely you are to be able to pay off his loan.
- Come back. Many lenders like to keep their money working for them, and once you've established yourself as a reliable borrower, working with you saves them from taking the risk of finding someone new and untested. Over time, the lender may even be willing to take bigger risks with you as his trust grows.