Investing in hard money loans, or hard money loans is a rewarding and profitable experience if done with thought and careful diligence. Following are some tips to guide you along the way.
Work with an experience private money lender
Someone that can help you select loan investments which meet your yield expectations and risk tolerance. Private money lenders look for long term win-win relationships with their investors. Find a private money lender who’s incentives are aligned with yours and has experience in the area in which you choose to lend. Thorough research is imperative to establishing a successful relationship and profitable investment. The Private Money Lending Guide Directory of Loan Investment Advisors is a great place to start your research. With thorough research you will find that hard money lending or investing in hard money loans isn’t that hard at all.
Perform your own due diligence.
Carefully evaluate the underlying collateral and terms of each note investment. There is no substitute for your own carefully completed research as opposed to relying on the opinion of others. While multiple points of input regarding value such as an appraisal and a broker price opinion are an excellent start, it’s always wise to inspect the property and the comparable sales/listings cited in the value reports to make a final determination. See Appraisals the Private Money Way for a detailed list of considerations when evaluating collateral.
Analyze each note investment carefully.
Use Internal Rate of Return and Net Present Value analysis to review the financial return on your note to make sure the loan meets your criteria. See “Financial Analysis for Note Investing” and “How to Calculate the IRR on your Note Investment”.
Seek outside advice.
While a private money lender’s incentives may be aligned with yours, it is always advisable to have independent experienced counsel evaluate your investment. Additional information can be found in the article “Working with Attorneys”.