There are certain attributes I have found in successful hard money investors. Following are some of the key characteristics that are common to many of them.
The very first thing that is noticeable about successful investors is that they are decisive.
They make decisions fairly quickly and commit to doing the loan or not doing the loan. At the same time, they are often willing to change their mind when new data is provided or when the terms of the loan change.
To be decisive, an investor needs to be trained in how to analyze deals. Often, this is done with a mentor because there aren’t a bunch of seminars on how to become a hard money investor. The mentor could be an experienced investor or it could be a broker who arranges hard money loans.
The second thing is that they realize they are dealing with people who can’t get a loan from the banks so they don’t try to underwrite to bank guidelines. The banks offer lower interest rates because they have stricter underwriting guidelines. They also offer loans that require less protective equity than a private investor, sometimes doing loans as high as 100% of the property value.
Getting hard money rates requires a loan to have some problem that a bank can’t work with. It could be bad credit, a property in disrepair, inability to prove income or something else. Any private lender who wants a perfect file but wants higher rates is going to be disappointed. Files that are closer to bank guidelines will be taken by other investors who will do lower rates.
The third characteristic of successful investors is that they have developed somewhat of a system for choosing which loans they will do.
Each investor has their own preferences. Some will only do loans with certain rates offered. Others lend on properties they wouldn’t mind buying for the amount the are lending. This is actually a pretty good way of looking at it when you consider that if the borrower defaults, the investor could end up with the property.
Location can be a consideration too. Some successful investors like to be close enough to a property so they can drive to it. Others lend in areas they have some familiarity with. There are also some who will go further outside of their area when there is a full appraisal and the loan-to-value ratio is low enough for their comfort.
The fourth characteristic of successful investors is that they look at it as a business. Lending is not personal to them although they don’t want to foreclose on anybody. Their intent is to make a profit by helping someone who needs money from them.
Any successful business transaction is a win-win. Both the buyer and the seller, or in this case borrower and lender, benefit from the transaction. Keeping this in mind, they don’t assume the borrower is hiding something when an application is poorly done. Instead, they ask for the missing information that they want. Not jumping to conclusions but asking questions to get additional data allows them to do more loans and avoid the ones they shouldn’t be doing.
In summary, successful investors are professional at investing, having a system for analyzing and saving information as well as being knowledgeable enough to change their minds when additional information or changed circumstances are presented.