How to Cultivate a Partnership to Unlock Better Hard Money Loans

Hard money is a preferred form of financing for a lot of real estate investors. That being the case, obtaining a hard money loan should not be viewed as a one-off transaction. It should be seen as part of a longer and more strategic partnership.

Cultivating a strong partnership with a hard money lender is one of the most effective ways to take full advantage of this particular form of private lending. Strong relationships lead to lower points, better interest rates, and more preferable terms.

So, how does a real estate investor cultivate that sort of partnership? Actium Lending, a hard money firm based in Salt Lake City, Utah, offers some suggestions:

1. Establish a Verifiable Track Record

In the business world, executives love to talk about value proposition. The value proposition in commercial real estate is an investor’s track record. A good track record demonstrates that an investor brings predictability and limited risk to the table.

Remember that a first-time borrower is a virtual unknown to the lender. That means risk. A lender will offset the risk with higher rates, fees, and points. In addition, the terms will favor the lender more than the borrower.

A repeat borrower with a good track record of successful deals is easier for the lender to work with. Three things come about as a result:

• Mitigated Risk – A successful track record is evidence you know what you are doing. That says mitigated risk to a lender. The lender knows you can handle your projects competently and reliably.

• Predictable Payoffs – A lender has more confidence in predictable payoffs when you have a track record demonstrating that you hold up your end of the bargain.

• Streamlined Underwriting – After that first loan, the lender already has a lot of the information necessary for due diligence. They have your corporate documents, personal guarantee information, in so forth. It all makes underwriting successive loans easier.

The key to all of this is going back to the same lender for successive loans. With each loan obtained and paid off, you’re building a track record with that lender.

2.Prioritize Communication and Transparency

Clear and open communication with the lender is critical. Be proactive, provide plenty of updates, and be transparent about your plans. Also make sure you are always honest about your exit plan. If something changes along the way, be sure to notify the lender immediately. Lenders do not like surprises.

3. Execute Flawlessly Whenever Possible

Lenders are smart enough to know that projects don’t always go as planned. Nonetheless, an investor hoping to cultivate a strong partnership needs to commit to executing flawlessly whenever possible. Flawless execution is especially important in the first few deals. Going outside defined parameters doesn’t build trust; it tears trust down.

4. Negotiate Exclusivity Terms

By the time you have mastered the first three things, you’re probably ready to start talking exclusivity with the lender. You promise to use that lender exclusively for all future deals. In return, the lender offers you preferred rates and terms.

Negotiating exclusivity terms is normal and expected. And if you’ve got the track record to back it up, negotiations can actually strengthen both your position and reputation with the lender. From a long-term standpoint, that’s when the real magic happens.

The most successful property investors cultivate partnerships with their lenders. If an investor can find a single hard money lender with whom such a partnership can be cultivated, he has an advantage over his competitors. Investor-lender partnerships are what drive property investing. The strongest relationships close the most lucrative deals most frequently.