For most people looking to invest in commercial or real estate property, the most effective method of securing the initial capital is through a loan, either private or through a bank or federal money lender. This is where the conversation often takes a turn based on who you talk to. Some people swear by private money lenders while others swear them off entirely. Some say that bank lenders are more secure and less predatory while others argue that that same security makes them impossible to deal with unless you’ve already got something on the board.
The reality is that, while both lenders are viable, if you plan on making rapid expansion quickly, you’re going to have to look at going with a private lender. The challenge for many is that there are a ton of predatory lenders out there that have little interest in helping you and are much more interested in effectively scamming you out of your money. This means that you need to be very careful about who you work with and who should get your money.
That’s where we come in. Below, we’ve broken down the top 5 things you should always test your money lender on BEFORE signing any paperwork. This preemptively protects you from getting taken advantage of no matter how shiny and good-smelling they may appear at first glance.
#1. Extensive Track Record
The first thing you need to look at is their history. How many repeat customers do they have? How many high-end deals have they been responsible for? Just as they are inspecting you to see if you can pay back the loan, you need to inspect them to see how others regard them. If they don’t like to talk about the other clients in any way, you know you’re dealing with someone that won’t want to tell others about how they’ll treat you.
#2. Expertise In Real Estate
This may seem odd for a money lender to know but just hear me out. If your money lender knows about real estate and the market, then they know what a good deal is. If they know what a good deal is, they know what to back and (more importantly) what not to back. A predatory lender doesn’t care because they are trying to make money at your expense, not off the business deal itself.
#3. Negotiable Skills
When I say “negotiable skills”, I don’t necessarily mean their ability to convince you to sign something you shouldn’t. A money lender that is open to negotiations means that they are willing to work with you if there are cashflow issues. Again, everyone is trying to make money here. The difference is that a legitimate lender understands the long-term score while a predatory lender only cares about putting you in debt. If they are someone that will work with you, great. If they sound cagey or skittish, or if they are too quick to agree with whatever you say, you’re dealing with a predator.
#4. Acceptance Speed
One of the more understood factors that your lender should have is a relatively quick acceptance speed. Again, this is a fine dance that you want to play. Acceptance should be quick but not too quick. I don’t care how great your credit history is, if you’re being offered same-day acceptance or three-day acceptance speeds, run. Seriously. Run. That’s someone that has no interest in your scores and is only looking to give you as high an interest rate as they can.
Who Should You Visit?
Of course, just because you know what to look out for doesn’t mean you’ll get it right without an example. For those in the California area, consider checking out California Hard Money Direct (californiahardmoneydirect.net). Even if you aren’t in the area, studying what they display and what they offer is a great way to understand what your money lender should be like.