In the midst of your search for leverage as an avid or aspiring investor, I am sure you have come across both lenders and brokers for hard money loans. This article is written to help with your search and in making an educated decision. After all, it all comes down to how you will leverage your money, correct?
The Hard Money Broker:
I can not speak for everyone because everyone does business different, such as where fees are placed and what lenders they partner with. Some charge fees up front (for understandable reasons, they're not necessarily scams), and some like ourselves do not. The broker typically has access to dozens, sometimes hundreds, of lenders. Active ones have relationships with a small set of lenders or still some even stick with only one. Their relationships can be your advantage, even though you might be a first time client. Some lenders grant these loyal brokers a little flexibility or slightly better rates just to give the broker the ability to get the deal done. The other advantage is the flexible loan programs that can best suit you. For instance, if you are credit challenged, a broker would have a lender that is more keen on the asset than your credit profile. If you have great credit but have little to know experience to real estate investing, a credit based lender may work for you. And so on, up to the heavily experienced investors with liquidity that want the ultra low hard money rates. Ultimately, it depends on the broker's system as well, so be sure to ask how flexible their programs are.
The Hard Money Lender:
First, it is best to understand the direct lender's platform. Most lenders these days are simply another way or source of crowdfunding. Some are hedge funds, others are a small group of exclusive investors, the concept is all the same. Each one has access to funds invested by private individuals for the sole purpose of lending out their money for real estate investments. The company has a staff that qualifies the borrower, sets up the loan, and makes their money off of points and fees (sounds like another broker doesn't it). The disadvantage is that you're in one set program based on the agreements made to their investor clients backing the loans. As you evolve as an investor, your needs may change. With experience, your loan requests will be more desired and when lenders compete for your business, you win. But the SAVINGS by using a direct lender can be amazing! It may take some time before you figure out if a lender will cut you some slack with your loyalty. Most lenders that you give repeat business to will start lowering your rates, allow a larger loan amount or ARV, reduce your points, etc. as you come back to them for repeat business. Yet some, unfortunately, do not. The other way you save is on points and fees. Lenders tend to charge slightly less points because brokers need to add their own for providing their service.
No matter which route you take, loyalty towards either a broker or lender will always reap its rewards. There really is no better one versus the other. Ultimately, it comes down to your needs, and the overall deal. Feel free to drop in your thoughts and opinions.