Hard Money Investor Guide – Part II
If you’re sold on the idea of maximizing your wealth by becoming a hard money lender, you might be wondering what your next steps should be. By following these tips as a general guideline, you’ll be well on your way to securing your first private money borrower.
- Adequate Funding
- Business Entity
- Careful Preparation
- Marketing Yourself
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Adequate Funding
Start by making sure you’ve got enough money to lend; since many private money borrowers tend to be real estate investors, the amount of money you’re going to need up-front is significant. Many private money lenders will take money out of their own accounts for this type of investment, though if you don’t have all the money you need yourself, you always have the option of partnering with other investors to raise the funds you need as a means of getting started.
Business Entity
The first “official” step you’ll take towards becoming a private money lender is establishing yourself as a legal business entity. Ideally, you should set up your business in such a way that will protect you from individual liability. A couple of options that will allow you to do this are a corporation or a limited liability company (LLC). Both of these are relatively simple and straight-forward to set up with help from an experienced lawyer or accountant to handle the formalities for you.
Careful Preparation
Keep in mind that hard money lending is high in risk and high in reward, so you should have a “game plan” from the very beginning that takes into account best-case scenarios, worst-case scenarios, and everything in between. More than likely, you will be issuing financing to real estate investors who want to buy and flip distressed properties, so there is a fair amount of risk here, especially in terms of the potential for default. Take the appropriate precautions to protect your investment, such as obtaining a large deposit before lending any cash.
Marketing Yourself
Once your business is established and you’re ready to lend out money, you’re in business! The next step will be to market yourself as a private money lender, which you can do in a variety of ways. One popular option is to network with some local mortgage officers and offer them referrals for sending borrowers your way. Advertising both online and in traditional print ads is another great way to spread the word of your lending services and find your first clients!
