Hard money lending is a form of private lending popular with property developers, real estate investors, and certain types of businesses. The great thing about hard money lending is that anyone can do it with access to enough resources. Hard money lenders are not banks, so they can do things differently.
Actium Partners is a Salt Lake City hard money lending firm active throughout Utah. They concentrate mostly on real estate investments and business funding. Here’s what it takes to be successful in hard money, according to Actium’s experts:
1. Access to Funding
Hard money deals can be worth anywhere from $50,000 to several million. Unless you are independently wealthy, you’re going to need access to funding. That means you will need to get investors on board. That is not necessarily a big deal if you have a sound business plan.
Investors can be wealthy individuals looking to diversify their investments. They can also be middle-class business owners looking to add new investments to their self-funded retirement plans.
2. An Understanding of Your Niche
Hard money lenders usually aren’t all things to all people. They choose a niche and focus on it. Going back to Actium Partners, most of their deals are made with real estate investors looking to obtain new properties.
Actium has made the effort to fully understand real estate investing. They have spent years studying it. As a result, they now know as much about real estate investing as they do private lending. Their understanding serves them well by protecting them against bad deals.
3. Adequate Knowledge of Financial Services
Making a living on hard money requires a solid business plan along with execution of that plan. In order to do that, you need to possess adequate knowledge of financial services. You need to know how the financial services industry works, what customers expect, what you can and cannot do legally, and so on.
4. A Business-First Mindset
Speaking of making a living on hard money, doing so requires treating it as a business. Likewise, success requires having a business-first mindset. What does that mean? It means that you need to temper your own thoughts and emotions so that they don’t negatively impact business decisions.
Dealing with defaults is the perfect example. It is one thing to have compassion on clients who don’t make good on their loans. It is another thing entirely to allow a default situation to continue unaddressed because you feel bad for the borrower. You cannot do that with hard money. The risks are too high. You need to be willing to take the necessary action to protect yourself and your investors.
5. A Willingness to Take Risks
If you want to be a hard money lender, the one thing you need above all else is a willingness to take risks. Hard money lending is a risky business because it is asset-based. That means loans are approved and funded based on the strength of an asset being offered as collateral.
Hard money lenders do not look into all the details of a buyer’s financial past. They do not put a lot of stock in credit scores and histories. They look at assets. This allows them a lot of flexibility, but also introduces a much higher risk than what traditional lenders face.
There is money to be made in private lending. Successful hard money lenders prove it year after year. Just know that success in the hard money industry doesn’t necessarily come easy. It also does not come overnight. If you have what it takes and are willing to put in the work, hard money can treat you very well.