5 Reasons You’re Having A Hard Time Finding Capital
By JD Esajian on November 19, 2018
Access to hard money is something vital to every investor’s success. Even if you don’t think you need it, there will probably come a time when a hard money option makes the most sense. Regardless of your length of time in the business, there are hard money options available. Between your real estate agent, attorney, mortgage broker and networking contacts there is a good chance they can point you to a hard money lender in your area. From there, it is up to you to present yourself and your vision for the business in a way that makes you attractive to work with. As accessible as hard money is, it doesn’t mean it will simply fall on your lap. If you are having trouble getting hard money here are a few common reasons why.
- You don’t know the process. If you are looking for hard money it is essential that you take some time to research the process. You don’t necessarily need to be an expert, but you should know a little bit about loan to values, interest rates, fees and projected bottom lines. Not only does this make knowing what to ask for a little easier, but it helps you seem more credible. Finding a hard money partner is more about trust and relationship building than anything else. A hard money lender needs to know that the money they lend is going to someone who knows how to use it. If you show up to a meeting without the slightest clue of what you are doing, you can bet there is no chance of working something out. Ask people in your networking circle about the process or simply do a little research online. Without knowing how the process works, it is almost impossible to find a lending partner.
- Unrealistic expectations. A hard money lender is not an open line of credit. Sure, after you have worked together on a handful of deals and have a proven track record you may get to that point, but it takes time to develop. If you sit down and make unrealistic demands from the very first meeting you quickly diminish your chances. As much as the hard money lender may profit from your business, they are taking almost all the risk. Because of this, they can make demands and set the expectations. Simply because there are other hard money lenders in the area, doesn’t mean you can come in with a wish list. You need to know that you are the one looking for money, not the other way around. You are able to negotiate in certain spots, but for the most part you have to be willing to make concessions. With any meeting keep your expectations in check and understand who has the upper hand in negotiations.
- Difficult to work with. In some ways hard money lenders are similar to sellers, in that they often want the path of least resistance. Making profits are great, but if you come across as difficult to work with in your initial conversations they will quickly move on. This doesn’t mean you have to agree with everything a hard money lender proposes, but you can’t ask questions or make the situation more difficult than it has to be. As we stated, there is a certain level of trust and confidence that a hard money lender weighs when agreeing to work with you. They don’t want to have to babysit every deal and be available any time you have a question. Of course, there are some issues that bear immediate attention, but for the most part they want to give you the money and wait for a return. The more you constantly call, text or email with questions you should know and problems you should be able to figure out the less likely there will be a follow up deal.
- Fishing for a niche. Prior to any hard money meeting you need to do some self-examination on yourself and your business. Saying that you are looking for money for distressed properties to rehab is far from a plan. You need a defined lead generation strategy, a dedicated market, a team in place and sweet spot purchase price range. You don’t want to be fishing for a niche in the middle of your meeting. A lender may not agree with everything you say, but having a plan is always more appealing than coming up with something on the fly. Even if your plan is flawed, knowing that you spent the time to have a business proposal in place is much more likely to help get the money you are looking for.
- Poor reputation. It is not hyperbole to say that your reputation is one of the most valuable assets you have in your business. Everything you say, do and post helps frame your reputation, either way. It is important to remember this with every deal you are involved in. The real estate investing community is more connected that you think. An attorney on the selling side will find their way to a future deal. If you get into it about something petty you can bet it will come back to haunt you. Hard money lenders have many contacts and references they will reach out to prior to committing any capital. Unfair as it may be, if your reputation is poor it can be difficult building a new relationship.
There is hard money available, if you know the process and are easy to work with. If you are having trouble it may be due to one, or all, of these five areas.