Watch Out For Unfair Hard Money Lenders
Hard money lending is the oldest form of lending. In the past, when you wanted to buy a piece of property but didn’t have time to wait for the bank’s approval, you would ask your family or friends to refer you to someone who lends money. Hard money lenders used to advertise through word of mouth, which offered some security to borrowers. Nowadays, online technologies offer multiple opportunities for sellers and buyers to find each other. Therefore, the odds of finding the wrong person or company are higher.
Whether you are new in the hard money loan world or a longtime investor who knows the market, it’s always good to keep an eye out for fraud.
Study the market and walk away if the offer looks too good to be true
Interest rates for hard money lenders are usually between 7 and 14% and require collateral property to secure the loan. Be wary of lenders that promise rate that is significantly lower than the market average or don’t ask for collateral. Many companies take a bait-and-switch approach, attracting clients with sweet talk and then changing the terms right before closing the deal.
Ask a legal professional for help if the terms of the contract are unclear
You should be able to understand all terms and conditions of the loan by yourself. True hard money lenders make the process clear and straightforward. If you have doubts as to what the contract requires, or if it seems rambling or illogical, there is a chance that the lender is trying to trick you. Pause and ask for legal advice.
Take time to Google the lender
A respectable company makes itself easy to find online and on social media. Look through the website for contact options, which should include a phone number, social media icons, email addresses and a physical address. Go through its social media channels, see if the company mentions employees’ names, and try to find them on LinkedIn. If the company is legitimate, you should see online activity on social media (things like posts, comments, reviews, and testimonials)
Take one more look at the website
Solid companies spend quite a lot of time making their website look professional. Multiple spelling, grammar, punctuation errors, and typos should raise concerns. Look at the web address — it should start with “https” rather than “http.” If a website looks suspicious, it is better to walk away. You may have landed on a phishing site that pretends to be a hard money lender and steals your data.
We suggest you look for direct hard money lenders that lend their own money. When talking to lenders, ask these questions: how long has your company been in business? Are you a stand-alone company or subsidiary? Can I see recently funded projects? From that conversation, you will get a good feel for the company.
Last but not least, if you see yourself putting down roots in the real estate business, try to find a great lender, build a strong relationship, and use that company for multiple projects. Not only will this approach build trust, but may lead to exclusive rates and terms.