You find financial services fascinating. If you could, you would open your own savings and loan company. That’s not going to happen because you don’t have the resources to make it work. But you are thinking of getting into the hard money game. Do you have what it takes?
Hard money lending is private lending. It is offered by individuals or groups of investors willing to pool their money. A legitimate hard money firm is a state-licensed firm that must follow certain rules and regulations, despite those rules and regulations not being the same as those banks and credit unions must follow.
Here is what it takes to be a hard money lender:
Plenty of Money
Right off the bat, you must have plenty of money. You are not going to make it as a hard money lender with just a few thousand dollars to your name. Hard money loans can be worth tens of thousands of dollars on the low side. On the high side, you could be talking millions.
Salt Lake City’s Actium Partners is a firm funded by a group of investors who all pool their money. Whether they have 10 or 100 investors, their ability to lend will be directly impacted by the financial resources at their disposal.
Financial Services Knowledge
You will need an adequate amount of financial services knowledge to make a go of it. If you had a small fortune and decided to lend on your own, you could pretty much do what you wanted to do because you’re only risking your own money. But as soon as you enter an agreement with other investors, you are suddenly playing with other people’s money. You need to know what you’re doing.
At minimum, you need to know the rules and regulations in every state you intend to operate in. Start with your own state and work out from there. Above all, make sure that you don’t do anything that violates the law.
Industry Knowledge
Next up, you need knowledge of any and all industries you decide to become active in. Actium Partners focuses heavily on commercial real estate loans. So they have made it their business to know all the ins and outs of property investing. They know that industry as well as their own.
Plenty of Nerve
If you expect to make it as a hard money lender, you are going to need plenty of nerve. Hard money lending offers great rewards. If it didn’t, there wouldn’t be so many players in the game. But those players understand the risks. They understand that to realize a big reward, they need to be willing to take a significant risk.
You cannot be obsessively risk-averse and still make it as a hard money lender. You need to have the nerve to make loans that retail banks will not make. You also need to have the nerve to act swiftly when a borrower does not keep up with payments. In hard money, you cannot fool around with defaults.
An Entrepreneurial Spirit
Finally, hard money lending is a business. As in any business, you need to have an entrepreneurial spirit to succeed in the industry. You must be willing to innovate and try new things. You must be able to think outside the box.
Hard money is a profitable business. We know by the sheer number of private lenders operating in the hard money space. If financial services have always fascinated you, perhaps you should consider whether you have what it takes to be a hard money lender.
