Five tips for working with private money and hard money investors on both commercial and residential real estate deals

It is not a mistake that today’s credit environment is difficult to navigate. There have been more than 386 bank failures since May 2006, and many say the worst is far from over. Originators have been driven out of business at the same rate, leaving only a small number of originators left to make sense of all this mess, and try to carry on and make the best of their chosen career.

With all the Doom and Gloom in this market, there are many charlatans posing as investors, claiming they can get funds from hard-to-place real estate loans. They each have their own methods to use, mainly to scam you, however they use a lot of masks and will take your money, if you are not careful enough.

The only reason you should deal with hard money or private money in the first place is because your loan is extremely unique and “out of the box” from the guidelines of traditional financial and institutional lenders. Some reasons it might be unique is the legal description, whether it is a stated income arrangement, or also if it is a high loan amount.

I’ve compiled a comprehensive “Top 10” list of how to identify with these companies and whether you might be dealing with a charlatan or scam artist. Please read them carefully, as most of this advice comes from my own bad luck experiences with these people.

TIP #1

GET REFERENCES

They are soliciting you over the phone for your business and expect you to give them a million dollar deal in one phone call. If they gave you enough confidence as to where you think they can actually fund this deal, stop… TAKE A BREATH and ask for references. If they are financing deals, they can definitely put you in touch with some past clients who have done business with them. I would suggest at least 2 that have closed in the last 3 months.

Copies of settlement statements can be difficult to obtain from the investor, however, ask the client who the title company closed on the loan, or the closing attorney, and then call them to verify that the loan actually closed.

TIP #2

GOOGLE THEM

In an age when you can just put someone’s name in your search box, click “ENTER” and find out everything you need to know about someone. HAS TO! Cross reference names, company names, phone numbers, addresses, etc. I’m trying to close a loan right now with a guy who has a $65 million dollar line of credit, however the address on his letter of intent is for a $180,000 townhouse. Seems too good to be true???? Your Bet Do your research and legwork in advance, and you’ll save yourself time and stress later. Are they licensed to do business as investors? Are you registered with BBB? Foreclosed by Other Defrauded Borrowers? Etc. You will find a lot about someone on GOOGLE, or you may not find ANYTHING. And finding nothing is just as frustrating. BEWARE!

TIP #3

DO NOT SEND MONEY IN ADVANCE

Depending on the type of transaction, you are expected to send money up front to an investor if you are a charlatan or a scammer. THIS IS HOW THEY MAKE THEIR MONEY! Whether it be for a due diligence fee, an appraisal fee, a fee after they issue a letter of intent, etc. BE CAREFUL! These letters of intent are not worth the paper they are printed on. 9 out of 10 these scammers will say they are the investor, look at your loan, say they like it and issue a letter of intent, then expect you to send them $5000 – $25,000 up front with no guarantee of closing. They’ll have a good website, a good letter of intent, make it sound good, and once you send them the money, THEY’RE GONE! Most of them will take your money upfront and have good intentions when trying to find an investor to finance their real estate business, however when they realize there is no money available for this impossible, RESIDENTIAL CASH WITHDRAWAL OFFER SUPER JUMBO ESTABLISHED THAT you quoted at 6.5%, they will give up, close there LLC, change their name and phone number, and start over as someone else with a new company. It’s pathetic, but this has happened to me. BE CAREFUL!

TIP #4

ASK A LOT OF QUESTIONS!

Question everything. You will be proud of yourself if you become a man and question everything. Who is the source of money? Who pulls the trigger and writes the check? Is the money from private investors? What type of line of credit do investors have? Can you show me the proof of funds letter? Does the money come from a hedge fund? What hedge fund and what are the terms of the hedge fund? Can you put me in touch with 2 of your borrowers? How are you lending to such good terms? Who are they selling the note to? Do you realize the conservative nature of warehouse lines of credit? How are you lending money under the established terms? Where is your business located? How come you live in a one-bedroom townhouse and have a $65 million dollar line of credit? How come I can’t ask for appraisals? How are you getting so mad at me ASKING THESE QUESTIONS? How dumb do you think I am?

TIP #5

Don’t be AFRAID to BLOW THEM UP!

You put your loan scenario out there, everywhere. Broker websites, people you know in the industry, etc. It’s available for all to see, so expect people to reach out to you from all walks of life. You have a super tough deal that you needed to finance. A loan of 7 million dollars, a self-builder, the property is on the marker, it is indicated, he wants 1 million dollars in cash and he does not want to pay about 6.5%. You get the call, the investor claims he can do this deal. He has an answer for every objection you have, and he sounds very courteous in his speech. He is a trustworthy MAN. He is a charlatan. This is what he does for a living. Get the answers in advance. Follow the money! Do not deal with intermediaries! Avoid intermediary chains! Get TIPS #1 – #4 above and then move on. If you don’t feel good about this person or company, DO NOT PROCEED. If not they can show you the things in TIPS#1-TIPS#4. DO NOT DO BUSINESS WITH THEM. Create an Excel spreadsheet and start building your BLACKLIST. If this is a career you want to get into, there is a small group of people who actually lend money, and a large group of crooks, charlatans, and con artists, who are leaving in droves due to a lackluster economy. with a goal in mind. TAKE YOUR MONEY AND RUN!!!

BUYER BEWARE

For any residential or commercial hard money or private money loan, Brian Quigley is a Mortgage Broker with The Mortgage Network and a Real Estate Consultant with BPQ Real Estate Consulting. He can contact Brian Quigley at 720 524 3215. He currently resides in Denver, COLORADO for the past 8 years.