Four Problems with Hard and Private Money Lenders

Bad real estate deal photo

Yes, we know, it sounds kind of silly to be a private money lender yet tell our clients to avoid private money lenders. Right? Well, we know how we do business and we are very proud of the business we run but not all private or hard money lenders are cut from the same cloth.

Just like in any business, there are companies who’s reputation means everything to them and there are other companies that are more concerned about squeezing money out of “clients” before they realize they aren’t getting what they bargained for.

Here at CEB Capital, we want to make sure that even if you decide not to work with us, you are still being smart and educated when choosing a lender.

Here are some red flags to look for when perusing financing options:

  1. Upfront fees: This is very tricky and the biggest way “lenders” rip-off potential clients. There are lenders out there that will charge fees for everything under the sun and that could be before you are even approved for funding. That means there’s a chance you pay hundreds or thousands of dollars to a lender and still don’t get funded. Try to look for lenders who’s fees are part of the loan so you ensure you’re getting funded before you’re paying the lender.
  2. Sky high rates: Sure, 100% financing sounds glorious. Who wouldn’t want to buy a house, remodel it and sell it without a dime out of their own pocket? But, you would ultimately want to walk away with more dimes in your pocket, right? A lot of lenders who finance 100% of the ARV are charging such astronomical fees that your bottom line profits are eaten away into nothing. This means you’re working to flip a home for weeks or months and walking away with no profits. I’m sure this is not why you’re in the fix and flip business.
  3. No follow-up: Things move very quickly in the real estate industry. When you’re talking closing dates, appraisal appointments and proof of funds letters you need to know you can count on your lender to communicate a timeline with you. If you’re working with a company that doesn’t return your calls or give you a clear idea of what they are working on and when, you need to cut ties. Time is money and you don’t have the luxury to hurry up and wait.
  4. No help. First of all, most hard money lenders only want to work with experienced investors. They don’t want to “waste their time” with newbie investors and definitely don’t want to spend their valuable time teaching inexperienced flippers the tricks of the trade. Make sure, experienced or not, that you work with a company that takes the time to get to know you, your business and your deal. This will help all of you be successful.