How to Decide Between Hard Money Lenders for House Flipping

Experienced investors who flip multiple properties at once, or house flipping newbies who are looking to quickly scale their business, often depend on hard money lenders for quick bridge loans to purchase and improve fix and flip properties. Numerous hard money lenders offer bridge loan programs specifically crafted to meet the needs of investors. Choosing the best lender for your endeavors will depend on several important factors— since different lenders are good fits for different investors.

Questions to Consider When Deciding Between Hard Money Lenders

Once you have determined that the hard money lenders in consideration are licensed to do business in your state, it’s assumed that you will be discussing terms, rates, and fees, since the cost of borrowed capital will inevitably affect your bottom line.

Here are three questions about the borrower-lender relationship, which you should be sure to ask given the chance:

Will this hard money lender add value to the process?

Many real estate investors are under the false impression that all hard money lenders are basically the same. Lenders seem to offer similar fix and flip products, they charge similar points of interest and they lend to similar borrowers; however, if this is the case, what difference does it make which lender you choose?

The fact of the matter is, although the hard money lenders in consideration may seem similar on the surface, when you look deeper into their operations, whether its loan applications to borrower approval or loan funding/payoff, you will likely find differences that can significantly impact your bottom line.

Considering the right questions will help you choose between lenders to find the one that offers the flexibility that better serves your immediate needs.

Consider some of these questions:
  • -- Will the lender who offers a lower interest rate also charge you a prepayment penalty?
  • -- What if you complete your project in 6 months and pay off a 12-month long loan 6 months early?
  • -- Will the lender’s application, approval, and funding procedures include lengthy delays that impact your construction schedule and lead to loan extensions down the road?

While you are discussing a hard money lender's loan programs, ask yourself if the lender's responses to your questions give the impression that they will help expedite the approval process.A hard money lender’s commitment to prompt customer service is extremely important. Make sure you’re adding an experienced, dependable lending partner who knows your goals and is committed to helping you succeed.

Does the Lender Meet Your Standards?

Due diligence requires that you research your lender, just like the lender would be researching you before you come to an agreement. Every lender is going to ask you a similar set of mandatory questions to assess whether they want to do business with you.

Of course, this makes sense considering they are going to loan tens or hundreds of thousands of dollars to you; yet, answering these questions can make the relationship between borrower and lender feel one-sided. It’s important that you remember you are equals in this relationship.

Consider the fact that you will be bringing your money, skill, and reputation to the project. The success of your deal is on the line. A hard money lender benefits from lending you money, so they should communicate with you as an equal partner who has your best interests in mind.

Here’s a few important questions to ask a prospective lender:
  • -- Do you offer loan extensions? If so, how do your extensions work?
  • -- Will I be charged a fee if I pay the loan off before the full term is up?
  • -- What can I expect if I am late on a payment?
  • -- Why should I choose you as my lending partner? What sets you apart from other hard money lenders?
  • -- What’s the typical turnaround time from application to funding?

It’s important that you take notes during this conversation and evaluate how each lender communicates the answers to your questions. If you ever get the impression that you are not welcome to ask questions about their business practices, avoid working with them. A reputable and established money lender should ideally understand and appreciate your inquiries.

Have you spoken with other Investors?

Are you networking with other investors? Be sure to ask them about their experiences with the lending partners they have worked with in the past. Online reviews can also be a useful resource, but online reviews tend to skew negative; after all, a satisfied customer isn’t as motivated to review a lender as a disgruntled one, so be sure to get some feedback from colleagues in the industry whom you respect.

How do I make my final decision between hard money lenders?

When you have narrowed your search down to a few lenders who might best help you to meet your specific business goals, a lender that prioritizes customer service and focuses on your business success is your best choice.

RCN Capital | Connecticut Hard Money Lenders

RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing as well as long-term rental financing for real estate investors. RCN Capital also has flexible and competitive loan options available. Connect with us todayto discuss your next fix & flip investment.