Becoming a Hard Money Lender – Convincing Investors to Work With You
Hard money lending is not well known or understood by many investors; it is a niche business, and hence not a high volume business. You will run across investors every day who have never heard of this type of investing. One of your main tasks will be to educate your potential pool of investors on the hard money lending process, and to convince them that this is a low risk, high return investment opportunity. Your opening line could be, “We can teach you how to become your own hard money/private lender and make a consistent double digit interest rate return through a safe, simple and easy to understand investment”.
First, give the investor the background on the hard money lending business. Explain the history and stability of this lending model. Hard money lending has been around for many years and is a proven model of investment. You will be investing in local properties and you will be able to touch and feel your investments and see their progress. These are physical investments that are easy for any investor to understand.
Next, you should provide the details of the lending model. Make sure to mention the rates of return and the relative risks of hard money lending compared to more traditional investments in stocks, mutual funds, and CDs. These hard money loans consistently provide double digit rates of return. The returns are predictable and set at the beginning of the loan, and are not dependent on the whims of Wall Street. The risks are also lower than traditional investments, again since these investments are not subject to the ups and downs of the stock market. The hard money loans are secured by the appraised value of the property, so that even upon default, the investment can be recovered.
Lastly, make sure to address the common misunderstandings or fears about hard money lending. Investors often ask why their interest return is only 12 percent. Explain that this is a high return compared to the risk. To receive greater than a 12 percent return in the stock market, you would be taking a much greater risk. Since this business model is new to them, the investors will have a fear of being defrauded. First make sure to give them your detailed credentials so they are at ease with doing business with you, and then explain the other possible sources of fraud and how you eliminate these concerns. Most fraud in hard money lending occurs with the title company; explain that you deal with reputable title companies and will not have this issue. The investor may get the sense that this type of investment is too good to be true, why isn’t everyone investing this way. Explain that hard money lending is a niche business, that many of the larger brokerage firms and financial institutions do not deal with hard money lending, so it is not known to most investors.